REG 1

Question 1

What is the time limit for the IRS to collect after a tax is assessed?

Answer 1

10 years

Question 2

In the absence of an election to adopt an annual accounting period, the required tax year for a partnership is:

Answer 2

a tax year of one or more partners with a more than 50% interest in profits and capital.

Question 3

Tax shelters (regardless of ownership form) are generally prohibited from using the cash basis.

Answer 3

Tax shelters (regardless of ownership form) are generally prohibited from using the cash basis.

Question 4

Accrual basis accounting must be used for the sale and expensing of inventory (with limited exception for very small businesses).

Answer 4

Accrual basis accounting must be used for the sale and expensing of inventory (with limited exception for very small businesses).

Question 5

Accrual method must be used if

Answer 5

Corporations or partnerships with a C corporation partner with annual gross receipts in excess of $5 million for any year

Question 6

Personal service corporations can

Answer 6

use cash basis acct

Question 7

Adjusted basis of an asset is

Answer 7

the original cost (or other substituted basis—as in an exchange or contribution to a business in exchange for an ownership interest, or a gift, or inheritance) plus any additions or capitalized improvements, then reduced by depreciation allowed or allowable and amounts written off due to sale or involuntary conversion.

s corp-the adjusted basis can also be affected by the proportionate amount of partnership or corporation income and losses and distributions from the entity to the partner-shareholder.

Question 8

The business gift deduction is limited to

Answer 8

up to $25 per donee

Engraving, gift wrapping, mailing, and delivery charges may be deducted in addition

Question 9

The estate tax return is due

Answer 9

nine months after the date of death - A 6-month extension is available if requested prior to the due date.

Question 10

Unless the Internal Revenue Service consents to a change of method, the accrual method of tax reporting is mandatory for a sole proprietor with average annual gross receipts of over $1 million when there are

Answer 10

year-end retail trade merchandise inventories.

Question 11

Section 197 intangible costs include

Answer 11

goodwill, going concern value, patents, copyrights, franchises, trademarks, trade names, and various other intangibles. 15 year amortization

Question 12

Under the Negotiable Instruments Article of the U.C.C., for an instrument to be negotiable it must:

Answer 12

be payable to order or to bearer.

Question 13

The five requisites of negotiability (if any requisite is lacking, the instrument is nonnegotiable) are:

Answer 13

must be signed (S) by the maker or drawer (the signature can be a stamp that is intended as a signature),
must appear on the face (“within the four corners”) of the writing (W) (the instrument); adding “Pay to the order of X” to the reverse side does not cure the defect (if these words are lacking on the face),
must contain an unconditional (U) promise or order to pay (P) a sum certain (S) in money (and no other promise, order, power, or obligation is given by the maker or drawer),
must be payable (P) on demand or at a definite time, and
must be “payable (P) to order of or to bearer” (these are the magic words of negotiability; must be present as shown: “Pay X” or “Pay to X” does not meet this requirement and does not convey negotiability).

Question 14

itemized deductions are

Answer 14

a deduction from AGI

Question 15

deductions to arrive AT AGI

Answer 15

Alimony payments, trade or business expenses, and excess capital losses over capital gains (limited to $3,000 per year)

Question 16

Deductions from AGI are

Answer 16

unreimbursed employee business expenses are a miscellaneous itemized deduction

Question 17

IRC Section 1231 transactions include

Answer 17

sales or exchanges of real property or depreciable personal property. This property must be used in a trade or business and held longer than one year.

Question 18

benefits of 1231

Answer 18

Generally, a net Section 1231 loss is ordinary loss and a net Section 1231 gain (except for depreciation recapture) is long-term capital gain.

Question 19

how are start up costs taxed?

Answer 19

taxpayers may deduct up to $5,000 in the taxable year in which the business begins. The $5,000 amount is reduced by the amount by which the cumulative cost of start-up expenditures exceeds $50,000. Any remaining start-up expenditures not deducted are amortized over a 15-year period (180 months).

Question 20

exceptions to the uniform capitalized rules

Answer 20

Editorial costs incurred by a freelance writer,
Research and experimental expenditures,
Mine development and exploration costs

Question 21

After an S corporation elects to revoke its status as an S corporation, it must:

Answer 21

wait five years, but can apply to the IRS for an earlier reelection

Question 22

Organizational costs are:

Answer 22

connected directly with the creation of the business:
Expenses of temp directors
fees paid to state
accounting and legal fees

Question 23

Which act imposes liability on a CPA who prepares materially misleading financial statements issued in conjunction with the initial offering of securities. imposes

Answer 23

securities act of 1933

Question 24

securities at of 1933

Answer 24

initial public offerings and private placement securities

Question 25

sec act 1934

Answer 25

deals with annual reports

Question 26

By recording the mortgage, Jet protects its rights against

Answer 26

the claims of subsequent bona fide purchasers for value.

Question 27

Which of the following securities is exempt from registration under the Securities Act of 1933?

Answer 27

A class of stock given in exchange for another class by the issuer to its existing stockholders without the issuer paying a commission. The reason is that no “new” securities are really being offered. This is really an “exchange.”

Question 28

resales of the offering must be made under a registration or a different exemption provision of the 1933 Act.

Answer 28

Under the Securities Act of 1933, original offerings of securities may be made without registration (i.e., exempt from registration requirements) under one of the specified “exemptions” under Regulation D. However, any resales of the offering may be subject to registration unless another exemption provision of the Act is applicable.

Question 29

What is REG D

Answer 29

A series of rules that establish three exemptions (for limited offerings) to the registration requirements of the Securities Act of 1933:

Rules 501–503 set forth definitions, terms, and conditions.
Rules 504–505 provide “safe harbor” for small offering exemptions.
Rule 506 provides an exemption for private placements.

Question 30

Chapter 11 bankruptcy was revised under the 2005 Bankruptcy Reform Act. Some of the more material changes and additions include:

Answer 30

1. confirmation of a Chapter 11 plan of reorganization does not discharge an individual debtor.
2. individual debtors must use assets acquired after the petition was filed as necessary in the reorganization plan.

Question 31

What is the cram down rule

Answer 31

the court may it may confirm a reorganization plan over the objection of creditors if it is shown the plan is equitable.

Question 32

When does the 1934 Act apply if not traded on a national exchange?

Answer 32

Gross assets of $10 million

500 shareholders

Question 33

Under the Negotiable Instruments Article of the U.C.C., what kind of indorsement is made by the use of the words “Lee Louis”?

Answer 33

Blank, nonrestrictive, and unqualified

Writing an indorsement with only a name without specifying a further indorsee is a “blank indorsement.” Since nothing else was added to the indorsement, it is also an unqualified indorsement and a nonrestrictive indorsement. The check then becomes “bearer paper.”

Question 34

What is a bearer?

Answer 34

The bearer is the party in possession of an instrument that is payable to bearer or indorsed in blank.

Question 35

If a person is induced to enter into a contract by another person because of the close relationship between the parties, the contract may be voidable under which of the following defenses?

Answer 35

Undue influence

as this “assent” or inducement to contract arises from special or close relationships between the parties, which is exactly the point of the question. One party’s views are usually overcome by the other because of this close relationship.

Question 36

The tax preparer must maintain a file of returns and log of all returns for

Answer 36

three years after the close of the return period.

Question 37

ERISA sets forth standards for

Answer 37

fiduciary duties for pension-plan sponsors and managers, but does not include a requirement that employers are required to include employees and pension-plan managers.

Question 38

Under Chapter 7 of the Federal Bankruptcy Code, what effect does a bankruptcy discharge have on a judgment creditor when there is no bankruptcy estate?

Answer 38

The debtor is relieved of any personal liability to the judgment credito

Question 39

Are corporate shareholder liable for the debts of the corporation?

Answer 39

Corporate shareholders are not personally liable for the debts of the corporation: unless the corporate veil is pierced, they are liable only to the extent of their investment (limited liability).

Question 40

What is NOVATION?

Answer 40

the substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated.

Question 41

What is accord and satisfaction?

Answer 41

The discharging of a liability through payment.

Question 42

The following would impair auditor independence:

Answer 42

determining which, if any, recommendations for improving the internal control system should be implemented.
approving or being responsible for the overall internal audit work plan, including the determination of the internal audit risk and scope, project priorities, and frequency of performance of audit procedures.
preparing source documents on transactions.

Question 43

Section 11 of the Securities Act of 1933 imposes a civil liability on all issues, underwriters, etc. for

Answer 43

any material errors or misrepresentations in the registration statements REGARDLESS of whether an investor actually relied on the statement or not.

Question 44

A check must be

Answer 44

payable on demand

Question 45

What are the types of drafts?

Answer 45

1. Time draft: payable at some future, determinable time.
2. Money order: instrument with name of purchaser and payee on its face and drawn on a bank or post office.
3. Banker’s acceptance: draft drawn on and accepted by a bank (drawer = Bank A; drawee = Bank B).
4. Checks: a draft drawn on a bank and payable on demand.
5. Trade acceptance: draft drawn by seller of goods on the buyer and accepted by the buyer (drawer = payee = seller; drawee = buyer)