REG 1 Flashcards by India Lacy

True or False: Worker’s Compensation is included in gross income

False: it is excluded

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True or False: Interest on state government obligations is taxable

False: it is normally NOT taxable

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True or false: a tax refund and its interest is taxable

False: only the interest on the tax refund is taxable

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True or false: unemployment compensation is included in gross income

True

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True or False: Property Settlements are taxable

False. Child support also is NOT taxable

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True or false: Interest on federal and state municipal bonds is taxable

False

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AGI limitation for charitable contribution

10%

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AGI limitation for property contributed to charity

30% of AGI

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Contribution limit for a church?

50% of AGI

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True or false: interest on auto loans are deductible

False

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True or false: Premiums on disability insurance to pay worker if injured or unable to work are deductible as medical expenses

False: premiums on disability insurance are not deductible since they are made to replace lost income

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What is included in AGI: Salary, Alimony paid to former spouse, inheritance from grandparent, and proceeds of a lawsuit for physical injuries

Salary and alimony

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True or false: contributions of appreciated property are deducted at the lesser of FMV or the property’s basis if held longer than a year

False: deducted at FMV; DEPRECIATED property uses the lesser of basis or FMV

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True or false: Gambling losses up to the amount of gambling winnings are subject to the 2% floor

False

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True or false: employee business expenses are subject to the 2% floor

True

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True or false: Self employment tax is an itemized deduction

False: Self employment tax is an adjustment to arrive at AGI

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What is the deduction for investment interest expense if investment income is 10K, noninterest investment expenses of 8K and investment interest expense of 5K?

10K-8K= 2K , lesser of 2K or 5K –> 2K is the correct answer

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Which of the following credits can result in a refund even if the individual had no income tax liability?

A: child and dependent credit B: earned income credit C:elderly and permanently and totally disabled child D: credit for prior year minimum tax

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True or false: child care credit and retirement savings contribution credit are nonrefundable

True

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If gross income exceeds $150,000, which method is used to estimate the annual payment of tax?

the annualization method; otherwise, if GI does NOT exceed $150,000 then you can use the seasonal OR annualization method

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True or false: if there is an understatement of 30% of GI, then the statute of limitations on assessing additional tax is 3 years

False: the statute of limitations is 6 years since 30% is greater than 25%; otherwise if less than 25%, then the statute of limitations is 3 years

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True or false: the cost of merchandise and the business expenses other than the cost of merchandise are both deductible when calculating business income

False: the cost of merchandise is ONLY deductible

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True or false: Intercompany dividends are taxable

False

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In a tax free incorporation, what percentage qualifies as “control”?

80%

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True or false: Nonshareholder bonuses are deductible

True: only when they are paid within 2 1/2 months after the close of the tax year

Which of the following credits CANNOT be claimed by corporations: earned income, alternative fuel production, foreign tax credit, general business credit

Earned income credit; this credit can only be claimed by INDIVIDUALS

Two requirements for a personal holding company are?

more than 50% of the value is owned by 5 or fewer individuals and at least 60% of its AGI for the year is investment-type income

Distributions from complete liquidation are treated as what?

Capital gains or losses; it is treated as full payment for stock

What is the dollar amount for the accumulated earnings credit?

$250,000; this amount is deducted in order to find the amount that will be subject to the accumulated earnings tax

True or false: intangibles such as goodwill, licenses, franchises, trademarks, and covenants not to compete are amortized over 5 yrs using SL

False; 15 years!

True or false: intangible assets with indefinite lives are subject to amortization and an impairment test

False; only an impairment test; assets with FINITE lives are subject to both

True or false: Business gifts are deductible up to a maximum of $15 per recipient per year

False; deductible up to $25

True or false: Tax free income (municipal) increases basis

True

Fill in the blank: The owner's basis in a S corp. is _____ by the owner's share of profits and _______ by the owner's share of losses

increased; decreased

Three characteristics of unrelated business income

derived from an activity that constitutes a trade or business, is regularly carried on, is not substantially related to the organization's tax exempt purpose

True or false: using unpaid volunteers makes unrelated business income related

True

True or false: when you sell stock for a higher price than the related party's purchase price, you use the donor's basis

True; use the basis instead of the price you purchased the stock from the related party

TF: Property acquired as a gift has a rollover cost basis

True; do NOT use FMV

Real property is:

land and everything permanently affixed to it

TF: An automobile for personal use is a section 1231 asset

False; CAPITAL ASSET

TF: Capital assets do not include property held by the TP for investment

False; they DO include

Gain realized equation w/ boot paid:

FMV of prop. received - boot paid (+ boot received) - adjusted basis of prop. given up (includes deduction of ADPR.)

G/L recognized equation:

lesser of realized gain or boot received

New basis equation:

adjusted basis of prop given up + boot paid (- boot received)+ gain recognized (if any)

TF: When liabilities are assumed, they are considered as boot received when calculating the G/L recognized

False; they are only considered as "boot paid" to calculate the REALIZED gain and the adjusted basis

TF: Liabilities relived of from the TP is boot paid

False; boot RECEIVED

TF: Liabilities assumed by the TP is boot received

False; boot PAID

TF: Marketable securities are classified as capital assets if the TP is a dealer

False; TP must NOT be a dealer

TF: Common stock and partnership interests are NOT included in like-kind exchanges

True

Section 1245 dpr. recapture:

Lesser of the depreciation taken or the gain recognized

TF: Real property (i.e. buildings) is subject to the mid month convention under MACRS

True

TF: Personal property (machinery and equipment) is subject to the half year convention under MACRS

True

TF: Nonresidential property is depreciated over 40 years using SL

False; 39 years

TF: In a nonliquidating distribution, the partner takes the partnership basis for assets distributed

True

TF: Charitable contributions, dividend income, and capital losses are NOT separately stated items

False; they are not deducted when calculating the partnership's ordinary income

TF: Contracts are ordinarily assignable

True

TF: In a type b reorganization, the stock of the target corporation is acquired solely for the preferred stock of either the acquiring corporation or its parent

FALSE; voting

In a type b reorganization, the acquiring corporation must have control of the target corporation _____ after the acquisition

immediately

Almost all ______ policies are personal to the insured and cannot be assigned

insurance

TF: Taxes assessed against local improvements are deductible if they are of a nature that tends to increase the value of the property being assessed

FALSE; NOT

One of the requirements of a simple trust is that the trust not distribute ________.

principal (corpus)

TF: “Short swing” transactions are illegal.

True

Unrelated business income of charitable trusts is taxed at ____ rates.

trust

TF: When a capital loss is carried to another year, it is treated as a short-term loss

True

The 5-year class includes automobiles, general-purpose light trucks, computers, and ____ ______ (typewriters, calculators, copiers, etc.)

office machinery

TF: The 7-year class includes heavy, special-purpose trucks, and office furniture and fixtures (desks, filing cabinets, etc.).

True

TF: A CPA is not liable to third parties due to mere negligence

True

TF: A CPA is liable to third parties due to gross negligence or fraud

True

Maximum allowable deduction for Section 179 expenses is :

$25,000; reduced dollar for dollar for purchases/expenses over 200,000

TF: Ordinary income from a S corporation is not subject to self employment tax

True

TF: If a person files a Schedule H, he needs to also file Forms 940 and 941

False; does NOT need to file Forms 940 and 941

$14,000 is the exemption amount for gifts 2014

True

Nonliquidating distribution JE:

Debit to Retained Earnings, Credit assets that's distributed

Depreciable property used in a business is a Section ___ asset

1231

Section ____ only applies to the sale of personal property at a gain

1245

Section ____ applies to the sale of real property at a gain.

1250

TF: Funeral expenses are deductible on an individual's income tax return.

NOT deductible

TF: The basis of contributed property is not the same in the hands of the partnership as it was in the hands of the partner who contributed it.

False; IS the same

Hobby expenses are reported on Schedule A as __ ___`

itemized deductions

Rule ___ prohibits the retention of client records after the client has demanded them, even if the engagement is terminated prior to its completion

501

Only gifts of present interests are eligible for the ____ annual exclusion.

$14K

For alternative minimum tax purposes, unreimbursed medical expenses must exceed___ of adjusted gross income in order to be deductible.

10%

TF: Nonliquidating distributions of a corporation will not reduce the retained earnings of the corporation

False; WILL reduce; nonliquidating distributions are also taxable as a dividend when earnings and profits exist

TF: A nonliquidating dividend in excess of a stock's basis will be taxable as a capital gain

True

the PCAOB includes a chairman who may be a CPA if the individual has not practiced as a CPA for____years.

five

The estate tax return (IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) is due ___ months after the date of death of a taxpayer

nine

TF: If a seller is a merchant, risk of loss passes to the buyer when the merchant delivers the goods to the buyer

True

The FASB's Mission Statement recognizes that their mission is to improve the accounting standards that apply to ___ ____

nongovernmental entities

If the return omits an amount of income greater than 25% of the gross income shown on the return, the statute of limitations is ___ years

six

A ___ trust does not distribute principal (corpus)

simple

TF: Any foreseen or known third party who relied on the report can hold the CPA accountable due to negligence

True

TF: Home mortgage interest is not deductible for two personal residences subject to certain limits.

False

Risk of loss passes to the buyer upon tender of delivery to the buyer if the seller is a ____

nonmerchant

Taxpayers may contribute (and deduct) up to _____ to a traditional individual retirement account (IRA), and this may equal up to 100% of their earned income

5,500

TF: When a trust instrument is silent regarding a trustee’s powers, the trustee has the implied power to lease trust property to third parties

True

A partner's share of ordinary income from an investment in a limited partnership reported in Form 1065, Schedule K-1 should be reported in Schedule __, Supplemental Income and Loss.

TF: When it comes to items received by bequest from a deceased person, all capital gains are forgiven at the time of death

True

TF: When engaged in illegal activities, a TP may NOT deduct cost of goods sold

False; they must deduct the cost of merchandise (COGS)

Rule ___ prohibits the retention of client records after the client has demanded them, even if the engagement is terminated prior to its completion

501

TF: A child using Form 8615 may not be subject to the net investment income tax (NIIT)

False; is

The NIIT is a 3.8% tax on the lesser of___ ___ ___or the excess of the child’s modified adjusted gross income

net investment income

A child is taxed on unearned income greater than _____

$2000

UNICAP rules do not apply if average annual gross receipts do not exceed $__ million for the past three years.

What is the annual exclusion amount for MFJ?

$14,000

TF: Mortgage interest on a personal residence is an itemized deduction

True

For liquidation distributions, the basis of property received is the _____

adjusted basis LESS cash received

A personal exemption is allowed of $___ for a trust that is required to distribute all of its income currently (i.e., simple trusts).

300

TF: FOR TRUSTS: According to IRC Section 265, expenses that are not related to a particular type of income (indirect expenses) must be allocated proportionately between taxable and nontaxable income.

True

TF: A qualified personal service corporation is not allowed to use the cash basis of accounting

False; it is!

TF: A trade acceptance is a three party instrument

False; a draft is; a draft concludes with a drawer ordering a drawee paying a third party a sum of money

For a cash-basis taxpayer, gain or loss on a year-end sale of listed stock arises on the:

trade date

TF: When property that is owned by the taxpayer is transferred to his controlled corporation (80% owned immediately following the transfer of property to the corporation), NO gain or loss is recognized if the exchange is solely for stock.

True

If a child has interest, dividends, and other unearned income of more than $____, part of that income may be taxed at the parent’s tax rate instead of the child’s tax rate

2,000

For a liquidating distribution, if the FMV of the property is greater than the liability, then the gain calculated is equal to:

The FMV - Adjusted Basis

TF: All offerings made under Regulation A will be exempt from the full registration requirements of the Securities Act of 1933?

True;

Work Opportunity Credit requirements: Must work 120 hours __% of wages credit for employees that work 120 - 400 hours __% of wages credit for employees that work over 400 hours Target group (e.g. ex-felon) Began work before Jan 1, 2014

25; 40

Section 1244 STOCK loss is treated as ____ loss

ordinary

TF: A subchapter C corporation pays taxes on profits at the entity level and can deduct dividends paid (distributions to shareholders) before calculating the taxable income. Shareholders then pay tax again on those dividends.

False; CANNOT deduct dividends paid

Contributions to Coverdell education savings accounts must be made before the account beneficiaries are __ years old

TF: S corp distributions are NOT taxable to the extent of accumulated earnings and profits (C corporation earnings),

False; they are!

TF: A 100% redemption of a shareholder's stock is one of the categories of redemptions that qualify to be treated as a sale or exchange

True

TF: Moving expenses are not an adjustment to AGI

False; they ARE

TF: LT capital loss and charitable contributions are separately stated items

True

TF: Losses are allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%.

False; NOT ALLOWED

How is aggregate deferral calculated?

Based on the number of months from the partnership year-end to the partner's year-end, multiplied by the partner's ownership percentage.

TF: A beneficiary may also serve as an executor for the estate.

True

TF: A formula for sharing losses will be applied to sharing profits.

NOT

Deductible medical expenses are those that exceed __% of the taxpayer's adjusted gross income.

TF: For the year 2014, the maximum Section 179 expense is $20,000

False; 25K; if over 200K, reduce the allowable deductions dollar for dollar

The FASB's Mission Statement recognizes that their mission is to improve the accounting standards that apply to ______ entities

nongovernmental

TF: The estate is allowed a deduction for state death taxes paid.

True

TF: Moving expenses are an itemized deduction

False; NOT an itemized deduction

TF: Federal income taxes are deductible in determining taxable income

False; NOT deductible

TF: Beneficiaries can be taxed on amounts distributed that are greater than the DNI in the trust

False; amount distributed will NOT be taxed on amount greater than DNI

TF: To win a civil case under Section 11 of the Securities Act of 1933, the plaintiff does not have to prove that the defendant had intent to deceive nor that the plaintiff had relied on the registration statement

True

For a cash-basis taxpayer, gain or loss on a year-end sale of listed stock arises on the: trade or settlement date?

TRADE DATE

TF: There can be no deduction for losses as a result of passive activities.

True

TF: An accruable expense is one in which the services have been performed but has been paid for

False; has NOT been paid for

TF: Passive activity losses are deductible in the year the partnership is disposed of if there are any unused passive activity losses

True

TF: Interest expense on money borrowed to fund business activities is deductible as an item of ordinary business expense on Schedule F (or Schedule C)

True

TF: Roth IRA contributions are deductible contributions, and they are not reported on the personal tax return

False; NOT deductible

TF: For a nonqualified stock option, if there is an ascertainable value, the person will be taxed on that amount at the date of grant

True

AGI limit for donated property is:

30%

TF: Interest on auto loans is deductible

FALSE; NOT deductible

For Keogh plans, earned income is net self employment earnings reduced by the amount of the allowable Keogh deduction and _____

half of the self employment tax

TF: Employee business expenses are NOT subject to the 2% of AGI floor

False; they ARE

Medical expenses in excess of 10% of AGI are _____ deductions

itemized

State income tax is OR is not an itemized deduction

The deduction for investment interest expense is limited to net taxable investment income, which is taxable investment income minus all related investment expenses (_____)

other than investment interest expense

Tf: Mortgage interest is not deductible on Schedule A

False; it is deductible; so are real estate taxes

Utilities are or are NOT a deductible personal expense

NOT

TF: The loss on Section 1244 stock (worthless) is available transferee of the stock

False; ONLY TO THE ORIGINAL OWNER

A personal holding company deducts net long term capital gains less related federal income taxes and ____

federal income taxes

TF: PHC's are not liable for the accumulated earnings tax

True

TF: You can use the preceding year method if you have no tax liability in the prior year

False

What business credit combines several nonrefundable tax credits?

General business credits

When a corporation dissolves it ___ its liquidation expenses

deducts

Shareholders treat property received in a complete liquidation of a corporation as full payment for their ___

stock

Minimum accumulated earnings credit is:

250,000

TF: When a transferring shareholder in control of a corporation receives boot, he/she recognizes a gain/loss

True

An S corporation or a C corporation, which has the most flexibility when choosing a tax year?

C corporation

____ income is a separately stated item and NOT included in net business income

Dividend

TF: Annual information returns are required for all exempt organizations

False

Unrelated business taxable income must be derived from an activity that constitutes a trade or business that's regularly carried on and is ____________________

NOT substantially related to the organization's tax exempt purpose

TF: An S corporation may not deduct compensation of officers

False; MAY DEDUCT

TF: A company can use the 100% of the PY if they did NOT have a tax liability in the PY

False

Any payment made after the initial due date of the return is subject to the __________ penalty

failure to pay

What is the penalty for failure to pay percentage?

Half a percent for each month OR fraction of a month up to a MAXIMUM of 25%

All amounts paid after the initial due date are subject to interest so what is the interest percentage?

1% for each month OR fraction of a month

What is the tax basis for a SH when the basis in its property contributed is 10 and the cash distributed to the SH is 15?

The tax basis is 25; the B/S basis is the FMV of the property

The different between the life insurance proceeds where the corp is a beneficiary and the cash surrender value of the policy is _____ to current E&P

ADDED

The premium on a life insurance policy where the corporation is a beneficiary will be ____ from current E&P

subtracted

Real property not used in a trade or business is a ___ ____

capital asset

TF: A realized loss is recognized in like-kind exchanges

False

TF: The basis of property acquired by bequest or inheritance is the property's ______

Fair market value on the date of the decedent's death

Gift tax basis rule: when the sale price is ____ both the FMV and basis, then there is no G/L

in between

Real property (buildings) is subject to the _______ convention

mid month

Nonresidential realty is depreciated over ____ years

Under Section 1245 recapture rules, you take the LESSER of _____ and ____

depreciation taken; gain recognized

TF:Guaranteed payments are taxed on Form 1065 and flow through Schedule K1 as ordinary income

True

A partner's adjusted basis of a partnership interest is the adjusted basis of the property contributed minus

the partner's percentage multiplied by any liabilities assumed by other partners

To determine the tax basis of a partner's basis in the partnership, you should subtract any cash received AND

subtract the adjusted basis of the property distributed

Unrealized receivables and appreciated inventory for a partner in a partnership are considered ____ assets

"hot"

In a complete liquidation of a partnership, a partner recognizes gain only to the extent that the MONEY received ____ that partner's adjusted basis in the partnership immediately before the distribution

exceeds

Any gain resulting from the sale of a partner's share of unrealized receivables and/or appreciated inventories is treated as _____ ____

ordinary income

TF: When unrealized receivables and appreciated property is present, the sale of a partnership's interest gain is recognized to the extent of those items

True

Guaranteed payments are both an allowable deduction to the partnership AND ____ ___

separately stated on a partner's K1

TF: Distributable net income is the minimum amount of income that a beneficiary has to include in income from a trust distribution

False; upper limit

The maximum amount that can be transferred pursuant to a death tax free is:

5,430,000

TF: Complex trusts distribute corpus

True

TF: An exemption of $300 is available for ___ trusts

simple

TF: The charitable contribution deduction on an estates fiduciary income tax return is allowable only if the decedent's will specifically provides for the contribution

True

TF: An estate or trust is allowed a standard deduction in preparing the fiduciary income tax return

False; NOT allowed

TF: Trusts may use a fiscal year

FALSE; trusts must use a CALENDAR YEAR

The federal estate tax return is due ___ months after the decedent's death

TF: Capital G/L are _____ and must remain with the estate or trust to be taxed at that level

principal

When the creator is treated as the owner of a trust, it is referred to as a ____ trust

grantor

The income distribution is the LESSER of the DNI or the _____ _____

actual distribution to the beneficiary

Inherited assets automatically receive ___ __ treatment

long term

Office furniture is ___ year property and use the half year convention

Computers are ____ year property and use the half year convention

Nonresidential real property is ___ year property and use the _____ convention

39; mid-month

TF: Section 179 deduction can be used to create a loss and when a loss is present

False

TF: MACRS depreciation basis carries from year to year

True

TF: Section 1250 recapture applies to both gains and losses

False; ONLY TO GAINS

Circular 230:

Prohibits a practitioner from endorsing or negotiating refund checks issued to the client

A ____ transaction is a tax avoidance transaction

listed

TF: IRS publications are considered primary authoritative sources

False; NOT considered primary

Under the Ultramares rule, the accountant is liable for negligence to _____

parties in privity

TF: A suit for common law fraud may succeed only if the accountant acted with scienter

True

Negligence has 4 elements: duty of care, breach (lack of due care), causality, and ____

injury

Constructive fraud does NOT require ____

intent; constructive fraud only requires reckless disregard for the truth or falsity

TF: A corporation registered under the 1934 Act must file quarterly reports and proxy solicitations by mgmt

True

TF: Intrastate security offerings are not exempt from the registration requirements of the Securities Act of 1933

False; they are

_____ provides an exception from the full registration requirements

Regulation A

Under Section 11, a plaintiff must prove a false stmt in the registration statement and nothing else

False; AND damages

TF: Municipal bonds are exempt from registration

True

TF: Under Section of the Securities Exchange Act of 1933, the plaintiff must prove that he/she acquired the stock

True

TF: A purchaser does NOT have the right to rescind under section 12 of the 1933 Act if the issuer fails to meet disclosure requirements

False; a purchaser has the right

____ is a defense against section 11 of the Securities Exchange Act of 1933

DUE DILIGENCE

TF: Scienter must be present for a plaintiff to succeed with Rule 10b5 under the Securities Exchange Act of 1934

True

Scienter is a requirement for ____ fraud

actual

Only monetary damages are available under section ___ of the ___Act

11; 1933

When is the statute of limitations for Section 11 of the Securities Exchange Act of 1933?

One year after discovery and three years from the offering date

TF: Regulation A only requires an offering statement

True

TF: Interest income does appear on Page 1 as part of ordinary income on the partnership tax return

False; does NOT; it's only Schedule K

TF: Charitable contributions appear on page 1 of the partnership tax return

False; they appear on Schedule K

TF: Retirement plans for non partners are reported as part of ordinary business income not on Schedule K-1.

True

TF: Depreciation and the section 179 deduction are reported as part of ordinary business income not on Schedule K-1.

False; ONLY depreciation; section 179 IS reported on Schedule K1

TF: With a novation, the original parties are NOT released

False; one of the original parties is released

TF: The parol evidence rule does not bar the intro of prior written agreements

False; it does bar the intro of that evidence; it does NOT bar the subsequent oral agreements

___ ___ is when a person in a position of trust takes unfair advantage of the rltp such that the other party's free will to contract is overcome

undue influence

An immaterial _____ mistake is not a defense to a contract

unilateral

TF: In a contract, consideration must be exchanged simultaneously by the parties

False; consideration must be legally sufficient

A mutual mistake of ___ ____ will make a contract voidable

material fact

TF: The Statute of Frauds requires the party to be charged to sign the agreement

True

The statute of frauds wants a contract of goods in excess of $500 to be in writing unless _____

S.W.A.P - specially mftg goods, written confirmation, admission in court, performance

What is a firm offer?

An offer that's open with the absence of consideration

The Sales Article does not provide ____ damages

punitive

If the seller is NOT a merchant, risk of loss is with the _____

buyer upon tender of the goods

TF: Option contracts are revocable

False; NOT revocable

TF: With nonconforming goods, the risk of loss remains with the buyer

False; it remains with the seller; the seller makes a perfect tender which means the goods should be free from defect

When a seller ships nonconforming goods w/o notifying the buyer that nonconforming goods are being shipped, this is a __________

breach of contract; if the seller notifies the buyer, then it's a counteroffer

The four elements of negligence are:

causation, damages, duty, and breach of duty

TF: Signing without recourse does NOT negate contract liability

False; DOES negate contract liability

A promissory note is a ____ party instrument

two

What type of endorsement would the following words imply? "For collection only" and "without recourse"

for collection: restrictive; without recourse: qualified

A certificate of deposit is a ____

promissory note; a.k.a promise to pay

Minority of the maker (infancy) is a ____ defense against holders in due course

real

When an endorser signs without recourse, he/she does what?

does NOT undertake the contract liability of an endorser

The defenses against a holder in due course are the following: fraud in the EXECUTION, adjudicated insanity, material alteration, infancy, illegality, duress, suretyship defenses, statute of limitations, and _____

discharge in bankruptcy

TF: A holder in due course has priority over a prior perfected security interest

True

Where a debtor has paid more than 60% of the price of consumer goods collateral and the creditor repossesses the collateral after default, the creditor must sell the collateral within ___ days unless the debtor agrees otherwise

A purchase money security interest has priority over all other security interests if it is perfected within ____ days of the debtor's possession

TF: A purchase money security in CONSUMER goods is automatically perfected

True

The ___ agreement must be signed by the debtor

security

The 3 requirements for attachment are :

debtor has rights in collateral, value is given by creditor, and there's an agreement of the parties

A security agreement need NOT include the ____

amount

After repossession and sale, the first thing paid is the:

expenses incurred to repossess and sale the collateral

If a person has fewer than ___ creditors any one or more of them with unsecured and undisputed claims that aggregate at least ___ more than the value of any collateral securing the claim may file the petition

12; 15,325

TF: Under Chapter 7 bankruptcy, a trustee is appointed

True; NOT ch 11

Distribution of the bankruptcy estate is: secured claims paid FIRST, then priority claims SECOND, and remaining assets are :

split proportionally among the UNSECURED CREDITORS who have timely filed a claim

TF: When there are fewer than 12 creditors, any one creditor who's owed 15,325 in unsecured debt or more may file an involuntary petition in bankruptcy

True

TF: There is a requirement for liquidation in a reorganization

False; NO requirement

TF: Savings and loan corporations may participate in Chapter 11

False; may NOT

A party involuntarily petitioned into bankruptcy under Ch 7 with a dismiss of their case can recover: court costs and attorneys fees, compensatory damages, and ______

punitive damages

What companies may not go into bankruptcy voluntarily or involuntarily?

Insurance companies

TF: An individual engaged in the business of farming cannot be involuntarily petitioned into bankruptcy

True

Tax claims have an ___ priority

8th priority; tax claims are NOT treated as secured but they are paid before general creditors

If an instrument has a condition that is already satisfied it is not ____

negotiable; negotiability requires unconditional promises

Requirements for negotiability:

writing, signed, unconditional, money only, payable at definite time or on demand (acceleration and extension are OK), pay to order/bearer

Maker is associated with what financial instrument?

Note

A drawer is associated with what financial instrument?

Draft

TF: Restrictions on the face of a financial instrument destroys negotability

True

To be a HDC:

give value (no gifts), good faith, have a good instrument (no liens), negotiable

A drawer is ____ liable

secondarily

A maker is ____ liable

primarily

TF: A drawer is primarily liable after it accepts it

True

Endorsers are ___ liable

secondarily liable; only primarily liable if primary party does not provide payment and notice is given to the secondary party

A PMSI has priority over who?

Other creditors in the same collateral

Requirements for attachment include:

agreements (authenticated record signed by debtor or taking possession), rights in collateral, and value

Order of priority for debtor:

Buyers in ordinary course of business, PMSI, non-PMSI (you ARE perfected), unperfected (only attached), and debtor

A writ of attachment is:

an order by the court to SEIZE a person's REAL or PERSONAL property

A writ of garnishment allows:

a creditor to collect money from a debtor's wages

Convertible, municipal, official, and debenture - which of the following bonds are a type of surety bond?

OFFICIAL

For sureties: a promise to pay the debt or default of another must be evidenced by:

a writing signed by the surety

TF: A minor may serve as an agent

True

TF: An agent is NOT liable on contracts that the agent makes on the principal's behalf whether the principal is disclosed or undisclosed

False; ONLY IF THE PRINCIPAL IS UNDISCLOSED WILL THE AGENT BE PERSONALLY LIABLE

FUTA taxes are paid by the employer and are deductible as ________

business expense; these are not withheld and not payable on ALL wages

Directors are treated as independent contractors so their income is subject to ______

self employment tax

The Taft-Hartley Act governs:

labor relations

Traveler's checks between 3K and 10K trigger _____ requirements but not _____ requirements

record keeping; currency reporting

TF: Members of a limited liability company DO have management rights

True

TF: A limited liability company will not be dissolved upon death, withdrawal or bankruptcy of an owner

False; IT WILL DISSOLVE

A limited liability company is taxed like a ____

partnership

TF: A limited partnership has 1 general partner and 2 or more limited partners that has no personal liability

False; one or more of both general and limited partners; limited partners do NOT take part in management but still can inspect books and records

TF: Preemptive rights provide a shareholder with a right of first refusal to buy a share of newly issued shares sufficient to maintain the shareholder's proportionate share of rights in any newly issued shares

True

A partnership or _______ can be formed without filing any documents with the state

joint venture

In a subchapter S corporation, the entity is taxed like a _____ but the shareholders have limited liability of the corporate form

partnership

TF: In a C corporation, the shareholders, directors and officers are not personally liable for the obligations of the corporation

True

TF: An S corporation can have a foreign shareholder

FALSE; CANNOT

For a LLC, what must be filed with the secretary of state?

articles of organization

TF: If a member in the LLC assigns his interest without the other members consent, the assignee is entitled to the assignor's profits

True

TF: In a limited partnership, a general partner can be an unsecured creditor of the limited partnership

False; ONLY SECURED CREDITOR

A limited liability company can have ____ owner(s)

one

An unincorporated joint venture will be treated as a ________

partnership

When a taxpayer personally uses a home, then a rental loss is _________

disallowed

TF: Interest on US T- bonds is not taxable

False; it is included in gross income

Self employment tax and self employment health insurance are _________ from GI

adjustments; they are NOT deducted from self employment earnings

Is the payment of tax still April 15th when the return is extended?

Yes

What date determines the status of the taxpayer?

December 31; exception: if a spouse dies during the year, the taxpayer can file a joint return

TF: Exemptions are pro-rated

False; NOT prorated

Qualifying child mnemonic is CARES which stands for:

Close relative, Age Limit, Residency and filing requirements, Eliminate gross income test, and Support test changes

Qualifying relative mnemonic is SUPORT which stands for:

Support (over 50%), Under a specific amount of taxable gross income, Prevents dependent from filing an income tax return, Only citizens, Relative OR Taxpayer lives with individual for whole year

Which is taxable: unemployment compensation or workers compensation

unemployent compensation is TAXABLE

TF: Interest on a deferred payout for life insurance proceeds is not taxable

False; NOT taxable

Property settlements are or are not taxable

NOT

Renting a residence for less than ___ days will classify the residence as PERSONAL

15; so depreciation, utilities and repairs are NOT deductible

TF: Passive activity is any activity in which the TP does materially participate

False; does NOT

If a TP withdraws from a traditional IRS before the age of 59 1/2, there is a _____% penalty

A withdrawal from an IRA will not receive a penalty if it's used for buying a first home. The max is ______

10,000

The "mom and pop" exception for passive activity losses has a _____ limited and a phase out between 100K and 150K

25,000

TF: When a TP uses a 1040 EZ, receiving a state income tax refund from the PY state income tax return is included in gross income

True; 1040 EZ does not let a TP itemize deduction

Roth distributions are ______ but earnings grow tax free

post tax

Distributions from a traditional IRS are or are not taxable

ARE TAXABLE

The four items NOT reduced by the itemized deduction phase out are:

gambling losses, medical expenses, investment int exp., and casualty and theft (non-business); GIMC; always allowed 100%

Individuals may deduct the FMV of property donated to charity up to _____ percent

TF:Self employed health insurance is an itemized deduction

True

Contributions of short term property are deductible at what?

The lower of cost or FMV

TF: Temporary living expenses and meals are included as deductible moving expenses

False NO LONGER INCLUDED

Which credit is refundable: the child and dependent care credit or the earned income credit?

earned income credit ONLY

TF: The child and dependent care credit is not refundable

True

The retirement savings contribution credit is a ______ credit

non-refundable

TF: Charity is an add-back for AMT purposes

False; NOT an add-back

TF: There is no penalty for underpayment of taxes

True

A TP may file a claim for refund within three years from the time the return was filed or ___ years from the time tax was paid

TF: Qualified dividends are includable in GI as ordinary dividends

True

Medical insurance premiums are deducted ____ AGI

FROM

A penalty on the premature withdrawal from a savings account is or is not deductible

IS deductible

TF: Health insurance premiums paid by a self employed individual are 100% deductible as an itemized deduction

False; 100% deductible to ARRIVE AT AGI

TF: Federal income taxes are deductible on the tax return

False; NOT deductible

Business interest expense on investments is deductible up to ________

investment income

For business property PARTIALLY destroyed, the loss is limited to the lesser of:

1: the decline in FMV or the adjusted basis immediately BEFORE the casualty

TF: Federal payroll is tax deductible

True

Personal service corporations, personal holding companies and ________ are NOT allowed to take the DRD deduction

personally taxed S corporations

TF: Brother sister corporations may not file a consolidated return

True

AMTI is $40K less ________

25% of minimum taxable income over $150,000

The tax rate on the alternative minimum taxable income is a flat ____ percent

The minimum tax credit includes a credit against future regular tax and it is carried forward_______

indefinitely; NOT carried back

The additional tax rate for accumulated earnings tax rate is ____ percent

When there is not enough current E&P to cover distributions, it is distributed on a ______ basis

pro rata

When there is not enough accumulated E&P to cover distributions, it is distributed in ____________

chronological order

When a corporation distributes assets, the equation for the shareholders is ______ - basis = taxable g/l

sale price

When a corporation SELLS assets, the equation for the shareholders is ______ - basis= taxable g/l

proceeds

A reorganization is a _____ transaction because it results in the continuation of a business in a modified form

NONTAXABLE

TF: Sec 1244 (worthless stock) allows an individual TP to deduct 100% of a capital gain against any form of income

True; 50K for single (100K if MFJ); any excess is treated as CAPITAL

TF: Section 1244 is available ONLY to original owners of the stock

True

TF: For an illegal business, business expenses other than the cost of merchandise and the cost of merchandise arae deductible

False; cost of merchandise is NOT deductible

TF: The foreign tax credit combines several nonrefundable tax credits

False; the general business credit

TF: In an S corporation, guaranteed payments do increase a shareholder's basis

False; do NOT

TF: In a S corp., shareholders are taxed on distributed earnings

False; taxed WHEN EARNED

TF: When calculating a charitable contribution, you should not add in DRD

False; ADD IN DRD then multiply by 10%

A corporation will pay ______ tax in addition to its regular and alternative minimum taxes

personal holding company

TF: If a sole shareholder receives boot, then a G/L is recognized even if immediately after the transaction the shareholder owns at least 80%

True

A _______ is not deductible in the current year, but it does have a 3 yr carryback and 5 yr carryforward

net capital loss; takes on short term character

Under IRC Section 351, a shareholder does not recognize a G/L when ______% is owned immediately after the transaction

TF: Taxable interest and tax exempt interest increase the shareholder's stock basis

True

TF: A built in gains tax only applies to a C corporation that elected to become a S corporation

True; an S corporation since incorporation does NOT apply

TF: Private foundations are not required to file annual information forms

False; they ARE REQUIRED

Premiums paid on key man life insurance proceeds are ______ on the books and ____________ on the return

recorded; NOT deducted

GAAP F/S record their assets and liabilities at their ______

Fair Market Value; REMEMBER: Financials use Fair Market Value

A corporation's tax basis equals:

The contributing party's property basis PLUS any cash paid to the contributor to complete the transaction

The failure to pay penalty percent is _____

0.5%

An artistic composition by the original artist is a ______ assets

NONCAPITAL

If an asset is held for exactly a year it is _________ term

SHORT

When selling an asset, if the selling price is higher than the donor's basis use the _______

donor's basis to determine the taxable gain

When selling an asset, if the selling price is lower than the donor's basis use the ________

lower of FMV at the date of gift to determine the taxable gain

HIDE IT: gains and losses that are NOT taxed What does it stand for?

Homeowners exclusion, involuntary conversion, divorce property settlement, exchange of like kind, installment sale, and property capital and stock

Like kind does NOT include inventory, ____, securities, partnership interests and real property in different countries

stock

Losses that are NON-deductible: wRaP

wash sale losses, related party transactions, personal loss

TF: Losses on related party transactions are allowed

FALSE; disallowed

Related party transaction rules: if SP is higher than basis then use the _____; if lower than the basis, then use the _____

relative's basis; purchase price

TF: Percentage depletion is allowed for tax purposes

False; NOT allowed; it is also an AMT preference item

Section 1231 losses are treated as ___losses

ordinary

Indirect costs incurred by reason of improvement must be ____

capitalized

TF: Syndication costs are deductible

False

An automobile for personal use is a _____ asset

capital

Real property not used in a trade or business is a _____ asset

capital

Property acquired by bequest or inheritance uses the ______ to determine the taxable gain. _____ is irrelevant

fair market value on date of death of decedent; basis

Real property is subject to the _____ convention

mid-month

Office furniture and a computer desk are ____ year property

Section 1245 requires that the ____ of depreciation taken or the _________ be recaptured

LESSER; gain recognized

If a partner recieves non-cash property, his basis is the lesser of __________ and the basis of the property

his/her basis in the partnership; basis in the property CANNOT be higher than the basis in the partnership interest

Any amount over the distributable net income is a nontaxable __________

return of capital

If it is year xx50, Form 1041 is due on _____

April 15, xx51

The income distribution deduction is the lesser of _______ or DNI

the actual amount distributed

A fiduciary must file a return on Form 1041 if the estate has gross income of $____ or more for the tax year and if NONE of the beneficiaries are nonresident aliens

600

TF: An estate is required to have a calendar year

False; an estate can have the same accounting period as the decedent

Form 706 is filed _____ months after the decedent's death

The two words that are associated with fraud are:

willful and reckless

Reasonable basis is ______% chance of a tax position to be upheld

Substantial authority is greater than ______% but less than _____%

33; 50

Which penalty is higher: the penalty for negligence or fraud

fraud; it's the higher of $5000 (as opposed to $1000) or 50% of the income received by the tax return preparer

A practitioner can charge a ______ fee but not a _____ fee

unconscionable; contingent

TF: A state board has to prove beyond a reasonable doubt that a CPA performed misconduct punishable by the state board

False; does NOT

Without a hearing, the AICPA can perform which action?

Suspend membership

What civil penalty can an SEC impose?

Suspend or permanently revoke the right to practice before the SEC, which includes the right to sign tax returns

SEC may impose fines of not more than $_______ ($______ for firms)

100K, 500K

When a CPA makes an error when calculating a client's tax return, a penalty _______ imposed

is NOT

What does Circular 230 prohibit?

A practitioner from endorsing or negotiating refund checks issued to the client

The CPA must retain a copy of the completed return for ______ years after the close of the return period

A listed transaction is a ___ ___ transaction

tax avoidance

The failture to file a tax return is an example of ____ _____

criminal conviction; NOT outside of accounting services

Tax Court Cases or IRS publications: which is NOT considered a primary authoritative source

IRS Publications

TF: There is a penalty for failure to disclose a conflict of interest

False

Who assumes responsibility for internal controls?

CEO and CFO

TF: CEO and CFO only report management fraud

False; they report ANY fraud

CEO and CFO report ____ ____ in the design or operation of internal controls

significant deficiencies

TF: Issuers are prohibited from making personal loan to officers and directors even in the ordinary course of business

False; ordinary course of business is fine

_______ is responsible for maintaining and establishing internal controls

management; not the auditor

Officers and directors owning more than _____ % are required to report transactions with an issuer

Most tax law originates in the _____ _____ _____ _____ _____

house ways and means committee

The ____ _____ _____ resolves differences between the senate and the house

joint conference committee; both the house and the senate must approve the compromised bill

A veto can be overridden by a ______ vote from BOTH the house and the senate

2/3

Form ______ waives a person's right to petition the court or receive any further statutory notices

870

The ____ _____ handles situation when the TP and the IRS cannot reach an agreement

Federal Court; either the IRS or the TP can initiate the process

What types of cases does the US Tax Court hear?

Only federal tax cases; TP does NOT have to pay disputed tax in full to petition

In US Tax Court, there is/are _______ judge(s)

1; there is NO jury trial

TF: In US district court, a jury trial is required

False; NOT required; must pay disputed tax in full; still one judge

There are ___ judges for the US Court of Federal Claims

The US Court of Federal Claims is a ______ court

nationwide

US Tax Court and the US District Court follow the appeals court decisions from the ____ _____ ____ ____

US Court of Appeals - there are 3 judges present; NO jury

The US Tax court and the US District Court go to the ______ appeals courts

geographic

Failure to file penalty is ____ % per month

5; max is 25%

Failure to pay penalty is ____% per month

0.5; max is 25% of the unpaid tax

Negligence penalty is ____% of the understatement of tax

Defense against negligence:

reasonable basis

Under a reasonable basis defense, most penalties will be avoided when the position is _____

disclosed

Reasonable basis has a ______% chance of being upheld

If it's NOT a tax shelter and it is not disclosed ________ a position will be upheld

substantial authority (> 33%

Tort includes: negligence, fraud or ____ _____

constructive fraud

Failure to notify client of a known internal control weakness is an example of:

negligence

Under the majority rule, the CPA has a duty to a limited forseeable class of persons that includes _____ and _____

lenders; investors

The minority rule applies to those in privity of contract with the CPA and ____ ____ ____ _____

NAMED intended third party beneficiaries

Elements of actual fraud (MAIDS): misrepresentation of material fact, _____, actual and justifiable reliance by plaintiff on misrepresentation, intent to induce plaintiff's reliance on misrepresentation, and _____

scienter (knowing of false misrepresentations); damages

Gross negligence is the same as ____ fraud except one is acting recklessly

actual

Defense of fraud:

lack of scienter/good faith; fraud opens the door to be sued by ANYONE

Defense for negligence:

due diligence

Under Section 11 of the 1933 Act, a plaintiff only has to prove LAM :

suffered loss, acquired the security, and the F/S contained a material misstatement

Rule 10b-5 has the same rules as Section 11 with the addition of ____ and reliance on misrepresentation

scienter

Reckless departure from due care constitutes ____ _____

gross negligence; a.k.a constructive fraud which leads to liability to ALL plaintiffs

An action for gross negligence requires BOTH negligence and __________________

reliance on a misstatement

What are the 4 elements of negligence:

duty of care, breach of duty of care, causality, and injury

When you prepare ONE registration statement for ALL securities that will be offered in the future, it is a ______registration

shelf; with a shelf registration information must be updated continuously

NO sales activity allowed ___ days before registration

Tombstone ads specify:

the security, its price, and who will execute orders

Preliminary (red herring) prospectuses are/are not final

are NOT

After registration, there is a ____ day waiting period in the meantime you can have oral offers to sell

Exemptions from 1933 Act: BRINGS

Banks, railroads, insurance companies, not for profit organizations, state and local government, short term commercial paper (maturity date of 9 months or LESS)

Regulati D securities must be held for ____ years before resale

2; SEC must be notified within 15 days after sale

Under Rule 505, _____ or fewer unaccredited investors are allowed

An accredit investor has $______ in net worth and $200K in annual income

1 million

TF: General advertising is allowed for Rules 504 -506

False; NOT rule 505; sometimes for 504 and 506

Unlimited dollar amount for Rule ____

506

$1 million dollar amount for Rule ____

504

$5 million dollar amount for Rule _____

505

Section 12 and 17 deal with antifraud and apply to _______securities

unregistered

Must register under 1934 ACT if traded on a national exhange OR companies have more than $_____ in assets and at least 2K shareholders or _____ shareholders who are not accredited

10; 500

Short swing profits are securities that are sold within a _____ month period; there is absolute liability on this transaction

Insider trading =

fraud; applicable to material, non-public information

Express contracts can be ___ or ____

oral or written

Common law applies to R.I.S.E which means

Real estate, insurance companies, services, and employment contracts

UCC applies to _____

sale of goods

Legally enforceable agreement requirements:

offers and acceptance, exchange of consideration, and lack of defenses

If you don't have knowledge of the reward, you _____ accept it

CANNOT

3 ways for rejection:

revoke, reject and automatic

An offer is not eligible if it is _____ before it is accepted

revoked

TF: You can revoke an offer even if you promise to keep it open

True!

If an acceptance is invalid, it's a ______

counteroffer

Under the UCC, there is NO _____ rule

mirror; means that there is no more or no less; anything other than is a counteroffer

Consideration must not have _____ value

monetary

A gift is NOT binding unless there is _____ _____

detrimental reliance

Fraud in the execution:_____ Fraud in the inducement: ______

void; voidable

Threatening a person's social or economic status makes a contract _______

voidable; a threat to harm a person physically makes a contract VOID

A promise to not compete must be acceptable in duration and reasonable for _________ location

geographic

Immaterial unilateral mistakes are _____

valid

Statue of frauds: MY LEGS - ALL REQUIRE WRITING

Marriage; multiYEAR contracts; land; contracts by Executors, sale of Goods equal to or greater than $500 (oral if completed within a year), contracts as Surety (pay debt of another)

Accord and satisfaction: new ______ same _______

agreement; parties

TF: No contradictions allowed under the parol evidence rule

True

Anticipatory repudiation is:

the lack of performance but notice was given beforehand; there are 3 options- cancel, consider it as a breach and sue immediately OR wait until the time and then sue

An individual can receive specific performance or _____ damages from a breach of a specific performance contract but not both

compensatory

Punitive damages are ONLY available for _____

fraud

TF: Securities issued by not for profit organizations are not exempt from registration

False; ARE

_______ mistake is a defense nonmistaken party knew or should have known of the mistake

Unilateral

Common law defense of fraud requires _______

scienter (intent to deceive)

If an assignee releases the obligor, then the ______is released too

assignor

A mutual mistake of a material fact will make a contract _____ at the option of the adversely affected party

voidable

A specific performance court order applies to unique or _____rare property such as patents

rare

TF: A promise to pay another's debt does not have to be in writing

False; DOES have to be

There is an obligation of ____ ____ under the UCC

good faith

A merchant's firm offer is open for _____ days

90 days; 3 months

To be a firm offers, the individual must be a merchant, the offer must be ______ and _______ by the merchant and the offer should have assurances that it will stay open for a certain period of time

in writing ; signed

Promise to pay is ______ where is a promise to perofrm is unilateral

bilateral

Under the UCC, ____ changes are allowed

minor; any material changes constitute a counteroffer

The exception to MYLEGS is SWAP - specially mftg goods, written confirmation rule (reject in 10 days), admission of contract to court, and ________

performance- contracts that have already been peformed

In a _________ case, the buyer will pick up the goods at the sellers place of business

noncarrier

For a _______seller, risk of loss passes to buyer at tender of delivery of goods

NONmerchant

When the seller ships the wrong items, the risk of loss ________

remains with the seller

If there is a right to return, the risk of loss _______

passes to the buyer until they return the goods; same for consignment sales

TF: When the goods have been identified for a buyer, the buyer may not insure the goods

False; they CAN

TF: Risk of loss is dictated ny ownership

False; title means ownership

If the buyer rejects, the title_____

reverts back to seller

The UCC requires _____ tender of goods

perfect

Implied warranties:

are there by law; three - merchantability, fitness for a particular purpose, title

An implied warranty of title _____ be disclaimed; can be disclaimed specifically or _______

can; by circumstances

Implied warranty of merchantibility: implicitly warranted _______

by law; this warranty ONLY applies to dealers (merchant); can be disclaimed by a dealer

Implied warranty for particular purpose ____ be disclaimed

CAN; similar to merchantability

If you are injured (not even in privity of contract), you can sue by breach of warranty or ____

tort

Two types of torts: intentional and _____

negligence

For strict liability, you must say that the product is defective, the seller was a dealer, and _____

the product caused the injury

Strict liability is liability without______

fault

TF: Punitive damages is not available for sales

True

_____ ____ is used to recover damages for unique items

specific performance

Replevin is used to recover goods that are _______ in possession if the seller

wrongfully

The two exceptions to a true owner recovering goods from third parties are :

entrusting (entrust goods to a merchant who then sells to a purchaser) ; voidable title (defrauder sells goods to a purchaser)

Risk of loss is dictated by _________ _______

shipping terms

An implied warranty of merchantability may be disclaimed by the use of an _____ _______that mentions merchantability

oral statement

Copyrights are good for the author's life PLUS ___________

70 years

Patents have protection under federal law for ______ years

Patents must be _____, useful , and NOT obvious to a person skilled in the area

novel

A certificate of deposit is a ______

promise to pay

A check is payable ___ ____

on demand; the drawee must also BE A BANK

The back of instrument ____ destroy negotiability

CANNOT

Requirements for negotiability:

signed (by maker for a note or drawer for a draft), unconditional, not governed by other agreements, no express conditions, even if satisfied

TF: Payment out of a particular source of funds and acceleration of the payment does NOT destroy negotiabiity

True

Checks ________ have to be dated

DON'T

Endorsements have 3 qualities:

special/ blank, qualified/unqualified, restrictive

Special endorsements:

signed over to a particular person

TF: Bearer paper does not require a signature

True

Requirements for negotiability ______ required for endorsements

ISN'T; endorsements are on the back where the requirements do not apply

Blank endorsements result in _____ paper

bearer

If a signature is forged or an necessary endorsement is missing, there _________ a HDC - subject to all defenses

ISN'T

If a drawer or maker's signature is forged, then there is _______ HDC

A; there is NOT a break in the chain; the maker or drawer is subject to real defenses

Endorsers are _____ liable if the primary party defaults

secondarily

"Without recourse" is a ______ endorsement

qualified; not secondarily liable; exception to rule for primary party defaulting; still have warranty liability

Restrictive endorsements _______ prevent further negotiation

DON'T

Restrictive endorsements includes words such as:

ONLY

To be an HDC you must:

give value, act in good faith, believe instrument is good (be without notice), know instrument is negotiable; IF ANY RIGHTS ARE MISSING YOU GET THE SAME RIGHTS AS TRANSFEROR

An executory promise does or does not count as giving value

does NOT

Shelter doctrine: _____ receives instrument from HDC

non-HDC

Real defense:

maker/drawer does NOT have to pay any one

REAL defenses:

F - fraud in the execution AND forgery A - adjudicated insane AND altered I - infancy AND illegal D - duress physically AND bankruptcy S - surety, statute of limitations

Anyone with the rights of an HDC wins against ______ defenses

personal; personal defenses are not apart of the FAIDS mnemonic

2 party promise to pay (NOTE) ______ pays

the maker (primary liable); the endorser is secondarily liable

The primary party on a draft or check is the _____

drawee (primary liable); the drawer and endorsers are secondarily liable; Drawer is secondarily liable AFTER acceptance; Drawee is liable AFTER signing

Oral stop pymt is good for ____ days; written is good for ____ months

14; 6

The forger is _____ even though the negotiability is intact

liable; if the forger is not to be found; the bank (the drawee) is next in liability

Imposter rule: _______ is liable

maker/drawer because they're negligent

Article 9 applies to ____ and _____

personal property or fixtures

A PMSI has ______ over all other types of security interests

priority

There is no PMSI in property that the person ______________

already owns!

3 requisites for attachments:

debtor signs an authenticated document OR creditor takes possession, value must be given the secured party in exchange for security interest, debtor must have rights in the collateral

TF: A creditor may attach to property that the debtor will acquire in the future

True

Five methods of perfection:

filing, taking possession of collateral, control, automatic perfection and temporary perfection

You cannot ____ until you attach

perfect

A financing statements covers ____ years

TF: An oral agreement for attachment is NOT valid

False; IT IS

Two types of goods that are automatically pefected:

PMSI in consumer goods and small scale assignment of accounts

If a debtor moves to another state, the perfection in the prior state is still valid for ______ ____

four months

Highest priority creditors to lowest priority are:

buyers in the ordinary course of business, perfected PMSI, perfected (NON PMSI), unperfected (attach only), the debtor (entitled to any surplus)

Although a PMSI in consumer goods does not have to file BUT should, if a person buys the consumer goods from the debtor they _________ have the goods repossessed

will NOT; this is known as the garage sale rule

What is the rule for a PMSI in equipment?

It has priority over other perfected security interests if filed anytime within 20 days of the debtor getting possession of the collateral; date of possession will be the day that the creditor took possession NOT the day the interest was perfected

There is no 20 day grace period for a PMSI in ______

inventory

For two non-PMSI's, the ____________ wins

first to file OR perfect

A __________ will have priority if attached before the security interest was perfected

judicial lien

Priority of proceeds in an auction:

pay expenses of repossession and sale, pay creditors w/ a security interest in order of priority, debtor

If proceeds of an auction are insufficient to cover the repossession and sale, the secured party may ______

sue the debtor for deficiency

A secured party may keep the collateral as satisfaction of debt HOWEVER if __________ is paid then the secured party must sell within __________after repossession

60% ; 90 days

Chapter 7 ___________ a ________ is appointed

liquidation; trustee

Chapter 13:

repay debts to creditors over a 3 yr minimum period to a 5 yr maximum period

Chapter 11: reorganization with ____________

NO liquidation

A chapter 7 case may be converted to a Chapter 13 case if chapter 7 is deemed to be _________

abusive

Chapter 7 means test:

(average monthly income - allowed expenses) * 60; if less than 7,475 - can remain chapter 7; if above 12,475. switch to chapter 13 or dismiss entirely

Any individual, partnership or corp may file for chapter 7 or 11 but NO________

railroads, savings companies, insurance companies, banks, or small investment companies

Credit counseling must be completed _____ days before filing the bankruptcy petition

180

Chapter 7 and 13 must take a _____ ____ course before debts are discharged

financial management

Chapters ___ and ____ have trustees

7 ; 13

If between the thresholds for chapter 7 and 13, there's a 25% test which is:

25% of your non-priority claims; if it is, you will have chapter 13 or dismissed!

TF: Debt relief agencies can encourage you to rack up more debt before filing bankruptcy

False

Chapter 7 and 11 can both be voluntary and ______

involuntary

Automatic stay:

orderly disposition of the debtor's assets; STOPS ALMOST ALL COLLECTION EFFORTS does not include child support or criminal court

TF: A balance sheet is needed in bankruptcy court

False; list of assets and liabilities

Which chapter is voluntary only?

Chapter 13

Does a debtor need to be insolvent for chapter 7 and 13?

_______ is the minimum amount for involuntary petition for unsecured

$15,325

When there's __________ 12 creditors, at least one unsecured creditor can petition

less than

When there _________ 12 creditors, at least three unsecured creditors must file a peition

more than

If creditors wrongfully file a petition, they are _______

liable; if in bad faith they could pay punitive damages

ALL property including its _______ is included when filing bankruptcy

income

DII are included that can be taken after the filing:

divorce, insurance, inheritance

Property that's protected after filing for bankruptcy:

earnings after filing, education savings, necessities unless there's a specific lien, mortgage, or lien on the necessities

Veterans benefits, child support, health aids ________ taken during bankruptcy

are NOT

No transfers are allowed within _______ years from the date of filing when a debtor is insolvent

90 day/1 yr rule for debtors is:

courts can take back any property transferred preferentially; they can look back 90 days or one year; preference creditor - will get more than they would have in bankruptcy court

Acceleration or ______is considered a preference

prepayment

A payment in full to a creditor _________ a preference

is NOT; they were going to get paid in full anyhow

WAFTED - debts that will never go away

taxes due in past 3 years, fraud, debts that are undisclosed, embezzlement and educational loans, alimony, willful malicious injury (DUI), fines and penalties

______ debts will go away in bankruptcy

MOST; not all

Order in bankruptcy court:

Secured creditors (up to value of collateral; if more than collateral they go to back of the line), priority, general

Priority creditor order: SAG WEG CTI

support, administrative expenses, gap period creditors ( 20 days usually), wages (up to 12,475-wages earned within past 180 days), employee benefits (reduced by amount allocated to wages), grain farmers, consumer deposits ( up to 2,775), tax claims, injury (personal)

Chapter 11: how many creditors/shareholders are needed?

The 7 largest for individual or corporation

In chapter 11, the debtor can come up with a plan within the first _______ days

120; it must then be approved by the committees but not unanimously (only 2/3)

The ____ is the last party to confirm a debtor's plan in chapter 11 and it then becomes binding to everyone even those that didn't vote

court

Chapter 15: there's a _____ representative in the US bankruptcy court

foreign

Chapter 9 is the __________

municipal adjustment for debt (ex. Detroit)

The creditor's committee is made up of ________ creditors

unsecured

TF: An automatic stay is NOT available under Chapter 15

False; it is

A foreign entity may also file under Chapters ______ and ______

7 ; 11

To properly perfect PMSI in inventory, creditor must give notice to ___________

prior secured creditors and must file prior to delivery to get ahead of prior perfections

The 3 parties of a suretyship transaction:

creditor, principal (debtor or obligor), surety

A true surety is ______ liable

primarily; along with the debtor; distinguish from a guarantor that is secondarily liable

A suretyship must be evidenced by ______

writing

Any variation of the surety's risk _____________

releases them from liability

Gratuitious surety is NOT ______

compensated

A noncompensated surety after a loan is made is not ______

binding; distinguish from a compensated surety which does not care about the timing

A ________ change in a compensated surety's risk releases the surety

material

When the debtor defaults in a suretyship transaction, a creditor may :

demand payment from surety and/ or debtor and go after collateral if there is any

Exoneration:

the principal gets a court order to compel the debtor to pay the creditor ( BEFORE the surety pays)

Two actions for surety after he/she pays:

subrogation and indemnification (reimbursement)

If a co-surety is discharged in bankruptcy, then the co-surety is ________ from the pro-rata calculation

excluded

Defenses of sureties: CPRS

Creditor acted in bad faith (duress, defrauded, illegality), payment and tender of payment, release of principal debtor, surety's incapacity or bankruptcy

A compensated surety is partially released when :

loss of security (discharge the surety in the amount of the value of the security released) and release of co-surety (remaining surety is discharged by the amount that he/she could have collected from the released co-surety)

Non-defenses for a surety:

debtor's fraud or duress upon surety, incapacity of principal (debtor) nor is the debtor being a minor a defense, bankruptcy of principal

Creditor's composition:

a debtor makes an agreement with at least two creditors to pay less than their full claims in full sastisfaction of their debt

A lien is on property in the hands of ________ whereas garnishment is in the hands of _________

the debtor; a third party

A mechanic or artisan that works on a car has a ______ lien

possessory; can possess the car and should be paid up to the amount of the work done on the car

Fraudulent conveyance:

transfer property to delay or defraud the creditors; creditors MUST go to court to repossess property fraudulently conveyed

Fair Debt Collection Practices Act prohibits:

calling third party to indirectly pressure debtor to pay; call at unusual times, call if debtor is represented by an attorney, make false or misleading claims

A collection agency under the FDCPA may:

call to see about a debtor's whereabouts BUT may not disclose that they're a collection agency and that the debtor's owes them money

A debtor may receive a ______ damage award for a collection agency's misconduct

$1,000

Discharge of the principal debtor __________discharge the cosigner of a loan

does NOT

A writ of attachment is:

an order by the court to a sheriff to seize a person's property

Agents can be ______

minors

Agents do not require _____ agreements UNLESS _______ or _______

written contracts; buying or selling land; cannot perform within a year

The _____ is required to sign the power of attorney

principal

Duties of agent to principal:

duty of loyalty, duty of obedience, duty of reasonable care, duty to account (no commingling of property)

A subagent has a duty to _________

principal and agent

Principal remedies:

tort damages (negligent or intentional breach of duty), contract damages (breach terms of agreement), recovery of secret profits, principal may withhold compensation if agent breached duty

In a principal - agent relationship either party has the power to terminate but not necessarily the ____ to terminate

right

TF: A principal cannot terminate an agency coupled with an interest

True

Agency power can arise through:

actual authority (POWER AND RIGHT), apparent authority/estoppel, or ratification

An agent _______ have implied authority to borrow money on the principal's behalf

does NOT

TERMINATION of actual authority occurs when:

death of principal or agent, discharge in bankruptcy of principal, incapacity of principal, failure to acquire a necessary license

The principal must have performed some of action or lack thereof to give an agent _________ autority

apparent; the mere representation by the agent as a agent is not sufficient

Secret limiting instructions only limits ______ authority but NOT ______ authority

actual; apparent - must give notice

A general agent has a continuity of services whereas a _____ agent does not

special

_____ notice must be given to destroy apparent authority to old customers and ____ notice must be given to new customers

actual; constructive

Termination of apparent authority by law requires _______ notice

NO; actual and apparent are destroyed by law

Ratification occurs UNLESS:

the performance would be illegal, the third party withdraws before ratification, or there's a material change of circumstance; PRINCIPAL MUST BE DISCLOSED TO RATIFY

______ principal is ONLY liable to third party if the agent has ______ authority

undisclosed; actual

If there's a disclosed principal, the agent ______ held liable

is NOT

TF: Partially disclosed principal and undisclosed principals holds the principal liable

FALSE; the agent is liable

TF: A third party can hold either the principal or agent liable if the agent is partially disclosed or undisclosed

True

No ______ authority with an undisclosed principal and NO ______

apparent ; ratifying

An undisclosed principal has ______effect on the agent's actual authority

Principal _____liable for torts committed by the agent EXCEPT for _______

is NOT; employers - if employee commits tort within the scope of employment

The employer is liable for an employee's _____ but not an _________

negligence; intentional tort

A principal only needs to ratify _____ acts and when the principal is _______

unauthorized; disclosed

Actual authority granted in writing ________ need to be rescinded in writing

does NOT

Limited Liability Company files a __________ to form

articles of organization

Limited Liability Partnership files a ____________ to form

statement of qualification

A ________is for a single transaction or a series of transactions related to a project

joint venture

Actions that need unanimous consent in a partnership:

admitting new partners, changing partnership agmt, confessing a judgment, fundamental change in partnership business, assigning partnership property to others

Dissolution of a partnership can be done by ________

just one partner; can sue by breach of contract

There is no apparent authority to:

sell a partnership's goodwill or confess a judgment against the partnership

A partner's creditor ________ go after the partnership's property

CANNOT

An assignment of the partner's profits and surplus does not make the assignee a ______

partner; cannot attend meeting, inspect books and records, vote, etc.

Creditors may attach a partner's ________ NOT ______

interest; property

In a general partnership, partners are ___________ liable

joint and severally

When a partner dies, the partner's right to profits goes to ______

the surviving partner

_______is applicable to partners, meaning that each partner must pay one partner their share of debt

Contribution

GP is the same as an LLP for ___________allocation

Profit or Loss

Dissociation occurs when a partner:

gives notice of withdrawal, dies, becomes bankrupt, or is expelled

Apparent authority for a dissociated partner__________ until notice is given

continues

Dissociated partner remains ______ for debts _____to dissociation

liable; PRIOR

New debts are factored in up to two years for a dissociated partner unless__________

notice was given

A partnership has _____duration

LIMITED

A partnership may continue after dissolution until it's ________

wound up

Partnership liabilities are paid in the following order:

creditors (including partners that are creditors) then partners - the return to partner is the return of capital

A limited liability partnership __________ to limit liability

must file

Under a LLP, a partner is liable for _________ and those________

own negligence; under direct control

Under an LLP, NOT liable for :

debts and contractual obligations

You can lose your investment in a GP and _____

LLP

A limited partnership has at least one ______

general partner

In a LP, limited partners do NOT ___________

participate in day to day management

A limited partner is like a ________

shareholder; they contribute capital and are liable up to their investmsnet

A general partner can also be a _________ but will still have unlimited liiability

limited partner

A limited partner who participates in control of the business is liable to any creditor who:

reasonably believes he/she is a general partner

Limited partners can vote on _____________

extraordinary matters

In a LP, a new partner is added with consent from _______

all partners

A limited partner _________ owe a fiduciary duty to the partnership

does NOT

When a general partner dies the partnership is _________

dissolved

LP distributions of assets:

creditors (incl partners that are creditors), former partners, current partners (return of contribution)

In a LP, if there is a loss after distribution of assets the _________

general partner ONLY is liable

An LLC is a hybrid of:

a corporation and a partnership

In an LLC, profit and loss________ and there is _________liability

flow through, limited

TF: Two people are needed to form an LLC

False; ONLY ONE PERSON

___________ members can participate in mgmt

ALL

In a LLC, voting strength and P/L allocations is __________ to contributions

proportional; SAME AS CORPORATION AND LP FOR p/l ALLOCATION; CORPORATION IS SIMILAR WITH VOTING STRENGTH

In a LLC, ______ consent is needed to add a new partner

unanimous

TF: The corporation is personally liable for the debts of the business

True

An LLC has _______

double taxation

An LLC has the option of being a ________ or ________

C corporation or S corporation

S corporations do not allow ______ shareholders

foreign; no more than 100 shareholders either

_____ class(es) of stock are allowed for S corporations

ONE

In a small closely held LLC, the shareholders can ________

run the corporation

A corporation has _______ life and is generally transferrable

perpetual

Promoters of a corporation are NOT _____

agents; they ARE personally bound on the contracts they make

Items in article of incorporation include

name of corp, name and address of registered agent, name and addresses of incorporators, number of shares authorized to be issued// one or more classes of shares must have unlimited voting rights

Ultra Vires Act:

A director or officers performs an action outside of its narrow purpose clause; they are liable if authorized

Bylaws are:

the rules for running the corporation; NOT required to be filed

Shareholders, officers, directors may be liable (piercing corporate veil) if :

there's commingling of funds, fraud on existing creditors, or undercapitalized at the formation

Financing of the LLC can come from _____ and ______

stocks; bonds

In an LLC, if a shareholder has one share, he/she has ______ vote

ONE; unless there is cumulative voting in the articles of bylaws which allows one vote for each director position being filled and the shareholder may cast the votes in any way

Once a distribution is declared by the B.O.D, the shareholders are considered:

unsecured creditors

TF: Dividends can be paid to common shareholders before paying cumulative dividends

FALSE; must pay cumulative dividends to preferred stockholders BEFORE common shareholders

Stock dividends are issued from a corporation's own _______________

authorized but UNISSUED shares

Stock dividends decrease _____ and increase ______ causing no change in _______

retained earnings; paid in capital; equity

Shareholders have a right to inspection for a _____ purpose

PROPER

Preemptive right:

current S/H have right to purchase additional shares in order to maintain current voting strength

S/H can dissent against the following fundamental changes: DAMS

Dissolution, Amended articles of incorporation, Merger, consolidation or share exchange, Sale of substantially all of the corporation's assets in the ordinary course of business; if the S/H lose the vote they can be bought out at FMV

Derivative action:

represents the bet interests of the corporation- enforces rights of the corporation; can even sue the directors

Direct action:

S/H sues the corporation

Directors may NOT vote by _____

proxy; there must be a quorum (majority) present and the majority must approve

Directors are NOT individual _______, they act as a group

agents

Directors may:

fix mgmt compensation, repeal bylaws, initiate fundamental changes, adopt amendments

Duty of loyalty prohibits:

directors from competing with the corporation; a conflict of interest is upheld if there's full disclosure and approval by the majority of directors AND the transaction was fair and reasonable to the corporation

A corporation can indemnify a director for expenses from a lawsuit unless:

the director acted in bad fatih

Officers of a corporation are ___________ and run the day to day operations

individual agents

Officers are selected by the ________

directors; directors have the power to terminate officers

Officers may also be _______

directors; there is some limitation

Fundamental changes require _______ and ______ but the approval will NOT be _________

board of director; shareholder; unanimous but majority approval is required

Fundamental changes must be approved by the holders of __________ shares in the corporation

outstanding

In a share exchange, one corporation buys all of the shares of another corporation but both _____________

continue to exist as separate entities

In a share exchange, only the corporation that is ________ must follow the fundamental change procedure (board approval, notification, shareholder approval, filing)

acquired in shares

A _____merger does not require approval from the board or shareholders

short form; 90% of subsidiary is owned; mail a copy of the merger plan to each shareholder whose right was NOT waived

For ____ purposes, a fiscal year end must be approved by the IRS

tax

An LLP ________ pay taxes on its earnings

does NOT

An intial corporation's bylaws may be adopted by either the _____ or ______

incorporators; B.O.D.

TF: A LLC is dissolved on the death, withdrawal or bankruptcy of a member

True

Amending the articles of incorporation require affirmation from the _______

shareholders

A _____is a contractual right to purchase stock

warrant

A joint venture does NOT require:

filing any documents with the state

TF: There is a requirement for a general partnership to file with the state and obtain state approval

False

Shareholders have the right to elect and remove _______

directors

An S corporation is taxed like a ________ but the owners still enjoy limited liability

partnership

A limited partner will be considered a ________ partner with ______ personal liability only to those that the limited partner transacts with

general ; full

When the partnership agmt is silent, a parent may dissociate ___________

at any time

The default treament of an LLC is a _________

partnership

TF: Inactive partners have the right to inspect partnership books and records

True

A JV is similar to a ______ _______

general partnership

A _____ can be voluntarily dissolved by filing a dissolution document with the state

corporation

FICA includes __________ individuals

self employed

If the employer fails to withhold the employee portion of FICA, they are liable to pay but can __________

request reimbursement

If the employer willingly pays the employee portion of FICA, the employer can _________ the portion and the employee is ________ on the portion

deduct; taxed - counted as income

FICA tax for self employed individuals is based on ______ income

net over $400; individual pays both employee and employer portion

FICA tax for employees sis based on ___________

gross income

Under FICA, you can get more than _______

contributed

FUTA _______self employed individuals

excludes

FUTA is paid for employee with quarterly payrolls of ______ or a person employed ____ weeks in a year

$1500; 20 FUTA is paid by employer ONLY as an ordinary business expense

Self employment deems an employer liable if the injury occurred while acting _____________

in the scope of employment

TF: An employee's negligence or assumption of the risk will bar recovery

False; will NOT bar recovery; HOWEVER fighting, intoxication and self inflicted wounds will bar recovery

Action against employer limited to ______________

worker's compensation recovery

Exceptions to worker's compensation:

employee may sue if employer intentionally injured them OR they can sue third parties and receive worker's compensation benefits// if successful, the insurance is entitled to any reimbursement for duplication of benefits paid

Worker's compensation includes loss _______

of income

Title 7 of the Civil Rights Act prohibits discrimination based on:

race, sex, religion, color or national origin; complains are heard by the Equal Employment Opportunity Commission

The basic defenses of discrimination:

seniority system; professionally developed ability; and occupational qualification

Equal Pay Act gives _______ if violated

backpay

Age Discrimination Act protects people over ________ and applies to employers with ____ or more workers

40; 20

Age Discrimination prohibits:

mandatory retirement age

Both _______ and ________ discrimination for age is prohibited

intentional; unintentional

Americans with Disabilities Act prohibits discrimination:

against individuals with physical or mental disabilities; employer must have more than 15 employees

OSHA applies all businesses affecting _________ commerce

interstate

OSHA can fine can employer _____ per day and civil penalties up to ________per willful or repeated violation

$1000; $10,00; OSHA also has criminal penalties

Fair Labor Standards Act sets an overtime rate of :

1.5 times the hourly rate for work weeks of more than 40 hours

FLSA prohibits hiring children under the age of ___________

14 UNLESS they're newspaper deliverers or child actors

Child workers are exempt from ______ and ____provisions as well as white collar workers (i.e. accountants)

minimum wage; overtime // Cab drivers are exempt from minimum wage provisions

National Labor Relations Act gives workers the right to :

bargain collectively for wages and other terms of employment

NLRA prohibits employers from:

interfering with employees attempting to unionize or discriminate against those with labor union membership

Labor Management Relations Act:

prohibits labor unions from charging excessive union fees, forcing employers to pay for unperformed services or calling for an improper strike

Employee Retirement Income Security Act:

protects retirement plan participants by establishing rules for management and participation in the retirement plans

Qualified pension plans receive _____________

special tax treament

The Consolidated Omnibus Budget Reconciliation Act allows individuals to continue:

the health insurance coverage they had after employment by paying up to 102 percent of the cost of the insurance

COBRA gives you the same benefits and includes _____

family

Under COBRA, an employer needs _____ or more employees

What is not included in social security?

Medicaid

FinCEN may impose ______ not _______ penalties

civil; criminal

Banks may file a Suspicious Activity Report within ____ days

Antitrust laws prohibit businesses from engaging in conduct that could stifle __________

free competition

Vertical restraints of the Sherman Act balance:

anticompetitive and competitive effects

Inherently illegal restraints are:

illegal per se (horizontal restraints)

____ price fixing is between competitiors (per se violation) and ____price fixing is between the retailer and manufacturer

horizontal; vertical

Section ____ of the Sherman Act prohibits monopolies

The ________ Act stops monopolies or antitrust violations before they occur

Clayton

Section 2 of the Clayton Act prohibits ____________

price discrimination

Section 2 (Robinson-Patman) of the Clayton Act prohibits ____________

price discrimination of commodities of like grade or quality

The Federal Trade Commission Act does NOT allow____________ suits

private party

There is a _____threshold for the filing of a current transaction report

$10,000

Bill of lading represents goods that are:

transported by a carrier

The issuer of a document of title is called a :

bailee (could be UPS or warehouse)

Musical compositions owned by the original artist is a _______ asset

capital

Real property is depreciated using the _______ convention

mid-month

The income distribution deduction for estates is the lower of ______ or ______

DNI ; actual distributions

The Section 179 deduction for CORPORATIONS is $25K lowered by the amount of property placed in service OVER ________

200K

REG 1 Flashcards

(814 cards)