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Flashcards in REG 2 Deck (150):
1

What remedy can surety seek before paying a debt?

Exoneration ( Indemnification, subrogation, and contribution are all remedies available to the surety after he has paid the creditor.)

2

Which report must be file to SEC in case of material event?

8-K within 4 days the material event occurred

3

Which account must be capitalized in order to convert AMTI to ACE

Amortization of organizational expenditures.

4

Which exception allows C corporation to use cash method of accounting?

If the C corporation is a qualified personal service corporation, or if the C corporation for every year has average gross receipts of $5 million or less for any prior three-year period and does not have inventories.

5

Which factor is important to determine if an express warranty has been created?

Whether the promises made by the seller became part of the basis of the bargain (may be made either orally or in writing and will exist regardless of the seller’s intent).

6

Give one debt not dischargeable in bankruptcy

Liabilities that arose from intentionally obtaining property or money by false representations or fraud.

7

When does ultra vires doctrine apply?

When a corporation enters a contract outside the scope of its express or implied authority granted by its Articles of Incorporation. (when executed on one side, can't avoid performance or rescind)

8

What is a non-taxable like-kind exchange?

The term "like kind" means the same class of property (e.g., real estate must be exchange for real estate, personal property must be exchanged for personal property within the same general asset or product class).(do not apply to an exchange of securities.)

9

Who can exclude the amount of a scholarship or fellowship that is used for tuition and course-related fees, books, supplies, and equipment.

Decree Candidate ( Amounts used for other purposes including room and board are included in income.)

10

What is a preferential transfer

It is a voidable preference : Can be set aside if made made within the previous 90 days prior to the filing of the petition.Made for preexisting debts which enable the creditor to receive more than s/he would have otherwise under a Chapter 7 liquidation proceeding

11

What is sec 1245 recapture

1245 recapture = depreciation1231 gain (Long term)= Gain -depreciationOffice furniture is Sec. 1245 property and gain from its sale is subject to Sec. 1245 recapture, which recaptures gain as ordinary income to the extent of all depreciation previously deducted. Any gain not recaptured would be a Sec. 1231 gain because the office furniture was property that was used in a trade or business and held for more than one year. Four years ago, a self-employed taxpayer purchased office furniture for $30,000. During the current tax year, the taxpayer sold the furniture for $37,000. At the time of the sale, the taxpayer’s depreciation deductions totaled $20,700.Selling price $37,000Cost $30,000 Depreciation ∁E20,700 Adjusted basis ∁E9,300Recognized gain $27,700Sec. 1245 recapture ∁E20,700Sec.. 1231 gain / LTCG $ 7,000

12

Who has joint liability for clean-up cost of a site

Past owners of the site as well as current owners and operators of the site all have joint and several liability for the cleanup costs. Therefore, any of these may be held liable for any proportion or all of the cleanup costs.

13

What is a quitclaim deed?

A quitclaim deed conveys merely whatever interest the grantor has in a specified piece of real property. It gives no warranty as to title, right to convey, etc.

14

What is an insurance deed

An insurable deed is one where an insurance company, usually a title company, assumes the risk of any defects in title.

15

What is a general warranty deed

General warranty deeds contain covenants guaranteeing that the grantor has title to the property and the right to convey it.

16

What is a special warranty deed

Special warranty deeds contain covenants guaranteeing that the grantor has title to the property and the right to convey it.

17

Is past consideration sufficient for a new contract?

No

18

What is the charitable contribution base for a corporation?

Taxable income computed before the charitable contributions deduction, the dividends-received deduction, a NOL carryback (but after carryover), and a capital loss carryback (but after carryover)

19

What are the necessary requirements for a valid deed

(1) the names of the buyer (grantee) and the seller (grantor), (2) words evidencing an intent to convey, (3) a legally sufficient description of the land, (4) the grantor’s (and usually the spouse’s) signature, and (5) delivery of the deed.

20

What is not included in a trust's accounting income?

"allocated to corpus"

21

Under Sec Act 1933, when is an accountant liable to a purchaser of security?

Purchaser proves a false statement or omission existed and the specific securities were the ones offered through the registration statement.

22

How much can be excluded from income on gain that is realized on the sale or exchange of a residence,

250'000

23

Can an offeror withdraw its offer?

Yes always, unless prohibited from doing so because of the existence of an option or the firm offer rule.

24

Is the firm offer rule applicable to sale of property?

No

25

What is the essence of a surety agreement?

The surety promises to perform upon default of the principal debtor. Further action by the creditor versus the principal debtor is not necessary (unlike a guarantor of collection). The surety, upon satisfaction of the principal debtor’s obligation to the creditor, is subrogated to the creditor’s rights in the collateral.

26

When can a creditor resort to pledged collateral?

Immediately upon default

27

When can ratification of a contract take place (for a minor)?

After reaching majority

28

Which between fraud in execution and fraud in the inducement is making a contract voidable?

Fraud in the inducement (parties are free to go ahead). Fraud in execution makes the contract void (paper has been falsified)

29

What is inducing a failure to file within the statutes of limitation

Failure to file within the time period removes from the court the ability to grant a remedy. Although the plaintiff cannot seek a judicial remedy, valid contract can still be voluntarily completed, and for debts (an underlying obligation, for example), can be revived.

30

What is it possible to recover in case of not material breach of contract?

Monetary damages (i.e. not full array of remedies available by law or contract)

31

When is a liquidated damage close unenforceable?

If either at the time of contract formation, damages would not be difficult to estimate, or the amount set as damages is considered as a penalty

32

What are the conditions to be a creditor beneficiary

one party to a contract in question owed the creditor money, and the contract in question was made specifically to satisfy that debt.

33

Describe the gain/loss basis for gifts

Gain basis = donor’s adjusted basisLoss basis = lower of fair market value or adjusted basisIf sales for amount between gain and loss basis, no gain or loss is recognizedExample : Bluff purchases equipment for business use for $35,000 and makes $1,000 of improvements to the equipment. After deducting depreciation of $5,000, Bluff gives the equipment to Russett for business use. At the time the gift is made, the equipment has a fair market value of $32,000. Ignoring gift-tax consequences, what is Russett's basis in the equipment?Gain basis = 35 E00+1 E00-5 E00 = 31 E00Loss basis = lower of 31 E00 and 32 E00 = 31 E00Basis = 31 E00

34

What are the characteristics of property bequeathed due to death of owner?

It has a fair market value basis to the beneficiary, and a long-term holding period.

35

What is a tax payer’s original basis in property acquired by purchase?

The amount paid in cash or property and/or the liabilities incurred. Example : Fred Berk buys a plot of land with a cash payment of $40,000 and a purchase-money mortgage of $50,000. In addition, Berk pays $200 for a title insurance policy. ->basis = 90 E00

36

What is the basis assumed by taxpayer for property received from a decendent through inheritance?

Basis equal to the fair market value of the property at the date of decedent’s deathExample : Lee inherits a partnership interest from Dale. The adjusted basis of Dale's partnership interest is $50,000, and its fair market value on the date of Dale's death (the estate valuation date) is $70,000. -> basis = 70 E00

37

How are capital assets defined?

Assets hold for investment or personnal use

38

What is the depreciable basis of equipment?

The basis includes all of the costs incurred to prepare the asset to be placed in service/Example :Purchase price. $55,000 Delivery charges. $725 Installation fees, $300 Sales tax. $3,400Depreciable basis = 59 E25

39

What is te basis to classify capital gains in long-term or short-term?

A gain is classified as short-term if the property sold or exchanged is held for one year or less and as long-term if the property sold or exchanged is held for more than one year. Losses from the sale or exchange of a capital asset are not deductible unless the loss results from a personal casualty loss.

40

Give examples of Ordinary assets

Account receivable/ inventoryDepreciable property used in a trade/business and realty that have been owned for a year or less

41

Give example of Section 1231 asset

Depreciable property used in a trade/business and realty that have been owned for more than a year

42

What is the property’s basis when alternative valuation date is elected?

Its fair market value on the date that is six months after the date of death.

43

What is the lenght of holding required for Section 1231 assets?

More than a year (otherwise Ordinary asset)

44

What is the donee basis in property acquired by gift?

The donor's basis in the property plus the gift tax paid. However, if the fair market value of the gifted property at the time of the gift is less than the donor's basis in the property, the donee assumes the fair market value of the property at the time of the gift as its basis for computing losses. The donee still uses the donor's basis in the property plus the gift tax paid in computing gains.

45

What is the holding period in property inherited?

Always long term (so always long term gains)

46

What is the basis for a joinlty owned property?

Proportion (example if 2 owners = 50/50)Example : Principal Residence (owned jointly with Karen as a tenancy by the entirety for five years) 400,000 (basis=$350,000) ->basis of $175,000 ($350,000 x 50%) + basis equal to fair market value ($400,000 x 50% = $200,000) =>375 E00

47

What is a wash sale?

When there is a purchase of same shares sold within 30 days of the sale.If totality of shares sold is purchased, no loss is recognized (loss generated by first sale)If only part is purchased, (number share purchased/number of share sold)% of loss is disaloowed (example 100/500 = 20% of loss is disallowed)

48

Are stock split taxable?

No, but the basis per share changes due to a stock split.Example : Green purchased 600 shares several years ago at $30 per share (basis = 18 E00). three years ago, when the stock price was $21, there was a 2-for-1 stock split (1 E00 shares for 18 E00 (same basis) and two years ago, when the stock price was $25, there was a 3-for-2 stock split (1 E00 shares for 18 E00 (same basis)). No other shares were sold by Green prior to year 2.

49

Are corporation capital losse’s deductible?

Deductible only to the extent of capital gains (since it is netted)Unused capital losses maybe carried back for 3 years and carried forward for 5 years

50

What is the maximum deduction for a given year for a Section 1244 loss?

50 E00 ($100,000 if married filing jointly) (ordinary loss). Remaining is treated whather in capital loss or ordinary loss (depending on the nature of asset)Example : In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Code Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Code Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?=>$50,000 ordinary loss and $18,000 capital loss (since it is investment = capital asset).

51

Which of long-term or short-term capital gains are eligible to be taxed at preferential rates?

Long-term capital gains

52

Which is the amount thay can be deducted by a non-corporate taxpayer’s in case his capital loss exceed his capital gain?

Lower of 3 E00 or the amount by which capital losses exceed capital gains.Example : Lee has a net long-term loss of $8,000 in 2014 (capital losses exceed capital gains of 8 E00) => can deduct 3 E00.

53

What are the conditions to qualify for ordinary treatment?

1244 stock must be issued to the taxpayer for money or other property transferred by the taxpayer to the corporation.Example : Jackson, a single individual, inherits Bean Corp. common stock from his parents. Bean is a qualified small business corporation under Code Section 1244. The stock costs Jackson's parents $20,000 and has a fair market value of $25,000 at the parents' date of death. During the year, Bean declares bankruptcy and Jackson is informed that the stock is worthless. What amount may Jackson deduct as an ordinary loss in the current year? =>0

54

How is treated carryover (5 years) and carry back (3 years)?

It is treated as a short-term capital loss, whether or not it was short-term when sustained.

55

Can Capital losses in excess of gains be used to reduce the taxable income of the corporation?

No, however, the unused capital losses may be carried back for three years and carried forward five years.

56

Which code section and subsection provides for the treatment of an individual's capital loss carryforward?

IRC§1212.b

57

What Internal Revenue Code section and subsection limits the deduction of a corporation's capital losses?

IRC§1212.a

58

How are considered tangible assets that are used in a trade or business and owned for one year or less?

Ordinary Assets

59

How are gain on the sale of a realty taxed?

Taxed at a 25% rate to the extent of the straight-line depreciation claimed on the asset. (Note that there is no Section 1250 recapture if straight-line depreciation is used for the asset.)The remaining gain is taxed as section 1231 gain.

60

What does the lookback provision state?

It states that the net Section 1231 gains must be offset by net Section 1231 losses from the five preceding tax years that have not previously been recaptured. To the extent of these losses, the net Section 1231 gain is treated as ordinary income.Example :Year Results of Operations. 1 Section 1231 losses of $50,000. 2 Section 1231 losses of $30,000. 3 Section 1231 gains of $75,000 4 Section 1231 losses of $20,000 5 Section 1231 losses of $30,000 6 Section 1231 gain of $80,000 => $55,000 ordinary income; $25,000 Sec. 1231 gain.

61

What are 1231 losses?

Loss on sales of assets that have been used in a business

62

How are treated Section 1245 property’s recapture gains?

Treated as ordinary income to the extent of depreciation or amortization taken on the property.

63

Are loss on personal use of assets deductible?

No

64

BPC owns equipment with the following tax characteristics :
Original cost $40,000 /Depreciation Claimed $15,000 /Straight-Line Depreciation $10,000 /Current Fair Market Value $60,000 /Holding Period 3 years
Total Gain/ Ordinary Income/ Capital Gain/Sec

Amount realized $ 60,000Cost $40,000 Depreciation claimed (15,000) Adjusted basis (25,000) Realized and recognized gain 35,000Recaptured as ordinary income (15,000) Section 1231 Gain 20,000 None of the gain is capital since the asset is a Section 1231 asset.

65

Video Productions owns a factory with the following tax characteristics:
Original cost $300,000 / Depreciation Claimed $40,000 /Straight-Line Depreciation $40,000 /Current Fair Market Value $360,000 /Holding Period 4 years

Total Gain : 100 E00 (For Section 1250 property, only the excess of actual depreciation over straight-line depreciation is subject to recapture as ordinary income. 360 E00-300 E00+40 E00) Ordinary Income : 0 (Recapture applies only to Section 1231 property)Gain taxed at 25% rate : 40 E00 (Depreciation Claimed)Capital Gain : 0Section 1231 Gain : 60 E00 (The amount not recaptured in ordinary income is categorized as a Section 1231 gain. )

66

What is Section 1245 recapture?

It recharacterizes gains on personalty as ordinary income to the extent of accumulated depreciation.

67

What is Section 1250 recapture?

Recapture of accumulated accelerated depreciation on buildings in excess of straight-line depreciation as ordinary income.For buildings owned by individuals "unrecaptured Section 1250 gains" recharacterizes gains on realty as eligible for a special (25%) tax rate to the extent of accumulated straight-line depreciation.

68

What are the requirement to qualify for MACRS accelerated depreciation?

For listed property only if the business use of the asset exceeds 50% of the total use.If not, must use straight-line depreciation

69

Under MACRS, how is considered office building?

Non-residential real property with class life of 39 years with mid-month convention (it is considered to be placed into service at mid-month). Land cannot be depreciated

70

Which convention is MACRS appliying for personalty’s depreciation?

Half-year convention which provides a deduction for one-half of the regular deprecation for the asset in the year it is sold.

71

Is Goodwill amortizable?

Yes always

72

Does Covenants not to compete qualify for amortization?

Yes if acquired in connection with the acquisition of a trade or business.

73

How long is the statutory amortization period for a covenant not to compete that is related to a business acquisition?

15 years

74

Under MACRS what is the use of the property depreciable basis as determined by code section 162?

It is used to compute the depreciation deductions, except that salvage values are considered to be zero.

75

What is the effect of eligibility to Code section 179?

Under this election, taxpayers may expense a statutory amount of the cost of property used by the taxpayers in active trade or business

76

What is the limit of Code section 179 deduction?

Deduction limited to the amount of taxable income originating from the trade or business in which the property is used and is reduced dollar-for-dollar when the taxpayer places qualifying tangible personal property in service that exceeds $20,000.

77

What is the requirement to be eligible to Code section 179?

Property purchased for use in active trade or business

78

To what Code Section 179’s deduction is applying?

Limited to the net income from the business, $15,000

79

To which class are computer belonging to under MACRS rule?

5-year property

80

What is the half year convention?

The half-year convention assumes that personalty is owned for one-half of the tax year for the year the asset is purchased, regardless of when the asset is actually purchased during the year.The asset is depreciated for one-half of the year for the year it is sold, regardless of when the asset is actually sold during the year.

81

Provide the IRC Section and subsection that indicates the convention that applies when computing MACRS depreciation?

Cola, Inc. purchased all of its personalty (equipment) in the fourth quarter of its tax year. : IRC§168.d

82

When does Attachment of a security interest under the Revised Article 9 takes place?

When the secured party gives value, the debtor has rights in the collateral, and one of the following is true:(1) The secured party possesses the collateral (2) The secured party has control of certain types of collateral (3) There exists a security agreement in writing or in electronic form

83

The accountant may be liable in preparation of unaudited financial statements, including compiled and reviewed financial statements for nonissuers (nonpublic companies) if?

(1) Failure to mark each page, “unaudited, Eor “See Accountant’s Compilation Report, Eor “See Accountant’s Review Report. E(2) Failure to issue a disclaimer of opinion, or an appropriately worded compilation or review report. (3) Failure to follow appropriate AICPA Statements on Standards for Accounting and Review Services. (4) Failure to inform client of any discovery of indications of major issues. For example, circumstances indicating presence of fraud.

84

List the priorities for the satisfaction of claims against the debtor in a bankruptcy proceeding under The Bankruptcy Reform Act

(1) Domestic support obligations (e.g., child support, alimony) (2) Administration costs (Includes fees to accountants, attorneys, trustees,...) (3) Claims arising in ordinary course of debtor’s business after involuntary bankruptcy petition is filed but before order for relief is entered (4) Wages, salaries, and commissions, including vacation, severance, and sick leave owing to bankrupt’s employees up to $11,725 per employee earned within 180 days before the petition in bankruptcy was filed (or cessation of business, whichever occurred first) (5) Contributions to employee benefit plans within the prior 180 days, limited to $11,725 per employee, reduced by amount received as wage preference (6) Claims on storage of grain or fish up to $5,775 for each individual (7) Consumer deposits for undelivered goods or services limited to $2,600 per individual (8) Taxes (federal, state, and local) (9) Obligations to an insured bank (10) Debts arising from motor vehicle accidents while under the influence of drugs or alcohol (11) General (unsecured) creditors that filed timely proofs of claims

85

What is a corporation estimated tax?

It is its expected tax liability (including alternative minimum tax) less its allowable tax credits.

86

Is the child dependent care credit refundable?

The child and dependent care credit is a nonrefundable credit that

87

Of how many % of the amount paid is the child dependent care credit variying?

It may vary from 20% to 35% of the amount paid for qualifying household and dependent care expenses incurred to enable a taxpayer to be gainfully employed or look for work.

88

Who must incurred expenses related to child dependent care credit?

Expenses must be incurred on behalf of a qualifying individual. A qualifying individual includes a taxpayer’s child (e.g., taxpayer’s child, stepchild, sibling, stepsibling, or descendant of any of these) under age 13, as well as a dependent or spouse who is physically or mentally incapable of self-care.

89

How much is the maximum amount of qualifying expenses related to child dependent care credit?

Since the maximum amount of qualifying expenses is limited to $3,000 for one, or $6,000 for two or more qualifying individuals, the maximum credit would be 35% ÁE$3,000 = $1,050 for one qualifying individual, and 35% ÁE$6,000 = $2,100 for two or more qualifying individuals.

90

Claims and Expenses
Claim by Dart Corp. (one of Knox's suppliers) for computers ordered on April 6, and delivered on credit to Knox on April 10. $20,000

Fee earned by the bankruptcy trustee. $15,000

Claim by Boyd for a deposit given to Knox on

When distributing the assets of the debtor’s estate, the trustee must follow priorities prescribed by bankruptcy law. In this case the first $5,000 of the remaining assets would be paid to Noll Co. since secured creditors have first priority concerning the property acting as their collateral. The next $25,000 would be paid to the trustee ($15,000) and attorneys ($10,000) because administrative costs are first priority among unsecured creditors. Next, $20,000 of the remaining $20,800 ($50,800 ∁E$5,000 ∁E$25,000) would be distributed to claims arising in the ordinary course of the debtor’s business after the involuntary bankruptcy petition is filed but before the order for relief is entered, a gap creditor. Since Dart Corp. is the only remaining creditor which falls into this category, it will be paid the full $20,000 owed it, leaving $800 ($20,800 ∁E$20,000). Of the remaining creditors, Boyd is given a higher priority since consumers Edeposits for undelivered goods or services (subject to a limit per individual) is given a higher priority than general, unsecured creditors. Thus, Boyd will receive the remaining $800.

91

Who has first priority among unsecured creditor?

Administrative costs

92

Which of general creditor or consumers Edeposits for undelivered goods or services (subject to a limit per individual) has priority?

Consumers Edeposits for undelivered goods or services (subject to a limit per individual)

93

When is a check payable?

Payable on demand

94

Is a check a promise or an order to pay money?

Order to pay money

95

What does a Partner recognize when an interest in partnership capital is received in exchange for services rendered?

A compensation income EXAMPLE: X received a 10% capital interest in the ABC Partnership in exchange for services rendered. On the date X was admitted to the partnership, ABC’s net assets had a basis of $30,000 and a FMV of $50,000. X must recognize compensation income of $5,000

96

To what kind of purchase money security interests is applying automatic perfection?

Automatic perfection applies to purchase money security interests in consumer goods.

97

When can a surety be released?

A material alteration by the principal debtor and creditor in the terms and conditions of their original contract without the surety’s consent will automatically release the surety if the surety’s risk of loss is thereby materially increased.

98

When does fraud enacted by the principal debtor on the surety will release the surety?

If the creditor was aware of this fraud

99

What does allow the fair use doctrine?

In general copyright law, the fair use doctrine allows the user a defense to some allegations of copyright infringement.

100

What kind of shareholder does not owe fiduciary duty to a corporation?

Minority shareholders, in general, do not owe a fiduciary duty to the corporation since they are simply investors.

101

Must a negotiable instruments be signed by both the drawer and drawee?

No. The legal requirement is that the instrument be signed by the maker or drawer to be negotiable.

102

How is the basis for a partner's partnership interest in case cash and non cash property are received?

The basis for the partner’s partnership interest is first reduced by the cash, before the noncash property

103

To what is limited the distributed property’s basis of a the partner?

Although a partner’s basis for distributed property is generally the same as the partnership’s former basis for the property (a transferred basis), the distributed property’s basis will be limited to the partner’s basis for the partnership interest reduced by any money received in the same distributionExample : Hart’s adjusted basis for his interest in a partnership was $30,000. He received a nonliquidating distribution of $24,000 cash plus a parcel of land with a fair market value and partnership basis of $9,000. Hart’s basis for the land is 6,000 (30'000-24'000)

104

May an employee who is unable to work because of a disability be entitled to unemployment compensation?

An employee who is unable to work because of a disability may be entitled to workers Ecompensation or Social Security disability benefits but will not be entitled to unemployment compensation.

105

Is gain or loss recognized if stock is exchanged solely for stock in a corporation that is a party to the reorganization?

No gain or loss is recognized

106

When is income generally reported under accrual method?

Under the accrual method, income generally is reported in the year earned. If an amount is included in gross income on the basis of a reasonable estimate, and it is later determined that the exact amount is more, then the additional amount is included in income in the tax year in which the determination of the exact amount is made.

107

Until when the auditor is responsible for reviewing material subsequent event?

The auditor is responsible for reviewing for material subsequent events through the effective date of the registration statement.

108

To what is the basis of shareholder’s original stock allocated if nontaxable stock is received?

If nontaxable when received, the basis of shareholder’s original stock is allocated between the dividend stock and the original stock in proportion to their relative FMVsOn January 5, 2015, Norman Harris purchased for $6,000, 100 shares of Campbell Corporation common stock. On July 8, 2015, he received a nontaxable stock dividend of 10 shares of Campbell Corporation $100 par value preferred stock. On that date, the market values per share of the common and preferred stock were $75 and $150, respectively. Harris Etax basis for the common stock after the receipt of the nontaxable preferred stock dividend is 5'000Harris Eoriginal common stock basis must be allocated between the preferred and common stock according to relative market values:Common stock Market value = $75 ÁE100 shares = $7,500 Preferred stock Market value $150 ÁE10 shares = 1,500 Total value $9,000 The ratio of the common stock to total value is 7,500/ 9,000 or 5/6. This ratio multiplied by the original common stock basis of $6,000, results in a basis for the common stock of $5,000. Note that the basis of the preferred stock is $1,000 (1/6 ÁE$6,000).

109

How may a corporation reduce its income tax?

By taking a tax credit for foreign income taxes.

110

What does implies the term payable at a definite time ? (on of the conditions of instrument negotiability)

An instrument which by its terms is payable only upon an act or event, uncertain as to time of occurrence, is not payable at a definite time. Ex "The instrument is payable 6 months after the death of the maker" : this affect negociability

111

What are the liabilities of undisclosed and principal and agent?

Both agent and principal are liable under authorized contracts if agent so intended to act for principal (a) Similar to partially disclosed principal (i.e., principal is liable for parts of contract s/he authorized and agent is liable for all of contract) (b) Agent generally has same authority as if principal disclosed

112

Is filing required to perfect an interest in inventory

Yes

113

What is included in the support of a dependent?

Food, FMV of lodging, medical, recreational, educational, and certain capital expenditures made on behalf of a dependent.

114

What is excluded in the support of a dependent?

Life insurance premiums, funeral expenses, nontaxable scholarships, and income and social security taxes paid from a dependent’s own income.

115

Who should a debt collector communicate with if a debtor is represented by an attorney?

Once a debtor is represented by an attorney, the debt collector should communicate with that attorney rather than communicating with the debtor.

116

What is the only defense available to a seller under strict liability?

The only defenses available to a seller are misuse and assumption of risk. A buyer misuses a product when he uses it for some purpose other than the purpose for which the product was originally intended. Assumption of risk exists when an individual uses the product without regard to an inherent danger associated with the product.

117

Is privity of contract a defense under strict liability?

Privity of contract is not a defense under strict liability because the suit is not based on contract law.

118

Against who the strict liability allows the injured party to recover against?

The strict liability allows the injured party to recover against either the manufacturer or the merchant seller.

119

What is "retained earnings- unappropriated?

"it is a ""per books"" figure found on Schedules L and M-2 of the corporate tax return Form 1120. The beginning balance is increased by the net income per books and decreased by the dividends paid and the debit adjustment. "

120

Are interest expense on a qualified education loan is deductible in the computation of an individual’s adjusted gross income?

Yes. The maximum annual deduction is limited to $2,500 and is reduced by modified adjusted gross income in excess of $60,000 if single, head of household, or a qualifying widow(er); $120,000 if married filing jointly.

121

What is the prerquisite for the creation of an agency relationship?

The principal must be able to give legal consent.

122

What are the 2 types of licensing statutes?

"Regulatory licensing statute?one that seeks to protect public from incapable, unskilled, or dishonest personsRevenue-seeking statute?purpose is to raise revenue for government "

123

Is a contract enforceable when a service requiring license is is rendered without license?

"Regulatory licensing statute?one that seeks to protect public from incapable, unskilled, or dishonest persons - UnenforceableRevenue-seeking statute?purpose is to raise revenue for government - Enforceable"

124

What is a fixture item?

An item that was originally personal property but which is affixed to real property in a relatively permanent fashion such that it is considered to be part of the real property.

125

What are the factors to be considered to determine if an item of personal property has become a fixture?

"(1)Affixer’s objective intent as to whether property is to be regarded as personalty or realty(2)Method and permanence of physical attachment to real property(a)If item cannot be removed without material injury to real property, it is generally held that item has become part of realty (i.e., a fixture)(3)Adaptability of use of personal property for purpose for which real property is used(a)If personal property is necessary or beneficial to use of real property, more likely that item is fixture(b)But if use or purpose of item is unusual for type of realty involved, it normally would be personal property "

126

What is available to principal when an agent fraudulently breaches a fiduciary duty?

Termination of the agency relationship and a constructive trust may be used as a remedial device.

127

To which extent is the realized gain from involuntary conversion recognized?

"Only to the extent that the insurance proceeds are not reinvested in similar property. Example : David Price owned machinery which he had acquired in 2013 at a cost of $100,000. During 2015, the machinery was destroyed by fire. At that time it had an adjusted basis of $86,000. The insurance proceeds awarded to Price amounted to $125,000, and he immediately acquired a similar machine for $110,000. What should Price report as ordinary income resulting from the involuntary conversion for 2015?The realized gain from involuntary conversion of $39,000 ($125,000 insurance proceeds ? $86,000 adjusted basis) is recognized only to the extent that the insurance proceeds are not reinvested in similar property. This results in a recognized gain of $15,000 ($125,000 ? $110,000). Because the machinery was Sec. 1245 property, this recognized gain of $15,000 is recaptured as ordinary income to the extent of the $14,000 of depreciation previously deducted, while the remaining $1,000 is classified as Sec. 1231 gain."

128

What is required for an investor corporation to qualify for dividends-received deduction (DRD)?

To qualify for a DRD, the investor corporation must own the investee’s stock for more than 45 days (more than 90 days for preferred stock if the dividends received are in arrears for more than 1 year).

129

Is DRD available to S corporation?

No

130

To what may DRD be limited

May be limited to the applicable percentage of the investor corporation’s taxable income.

131

What are the DRD % rule regarding the % of the investee stock owned by the investor corporation?

70% DRD applies to dividends from less-than-20%-owned, while a 100% DRD applies to dividends from corporations that are at least 80%-owned when a consolidated tax return is not filed.

132

In which case a principal has not power to terminate an agency relationship?

Where the agency is an agency coupled with an interest (i.e., where the agent owns part of the subject matter, the principal does not have the power to terminate the relationship).

133

Is receipt of a common stock distribution on common stock excluded from gross income?

"Yes. As a result, the cost of the original shares is divided by the total shares owned (including the dividend shares) to determine the basis for each share.Example : Taylor owns 1,000 shares of Media Corporation common stock with a basis of $22,000 and a fair market value of $33,000. Media paid a nontaxable 10% common stock dividend. What is the basis for each share of Media common stock owned by Taylor after receipt of the dividend? 20 (22'000/(1000+10%*1'000))"

134

Does security interest be perfected when a buyer is a buyer in the ordinary course?

Buyers in the ordinary course of business take free of any security interest whether perfected or not.

135

What are the characteritics of a complex trust?

A complex trust is one in which the trustee (1) has the discretion whether to distribute or accumulate income, (2) may make charitable contributions, and (3) may distribute trust corpus. The number and type of income beneficiaries and the type of grantor have no effect on a trust’s classification as a complex trust.

136

Which types of entities qualify for net operating loss (NOL) deductions?

Trusts and estates may have an NOL that can be carried back and carried forward and used as a deduction. Furthermore, for the year in which a trust or estate terminates, any remaining unused NOL passes through to the beneficiaries who succeed to the assets of the trust or estate.

137

To which extent must ordinary income be reported regarding the sale of partnership interests?

"A partnership interest is a capital asset and a sale generally results in capital gain or loss, except that ordinary income must be reported to the extent of the selling partner’s share of unrealized receivables and appreciated inventory. Example :On December 31, after receipt of his share of partnership income, Clark sold his interest in a limited partnership for $30,000 cash and relief of all liabilities. On that date, the adjusted basis of Clark’s partnership interest was $40,000, consisting of his capital account of $15,000 and his share of the partnership liabilities of $25,000. The partnership has no unrealized receivables or substantially appreciated inventory. What is Clark’s gain or loss on the sale of his partnership interest?Clark realized $55,000 from the sale of his partnership interest ($30,000 cash + relief from his $25,000 share of partnership liabilities). Since the partnership had no unrealized receivables nor appreciated inventory and the basis of Clark’s interest was $40,000, Clark realized a capital gain of $55,000 ? $40,000 = $15,000 from the sale."

138

What kind of election can an individual partner rather than the partnership make?

Income taxes paid to foreign countries is an item that is separately stated and passed through to partners on Schedule K-1 so that each partner can elect to take foreign taxes as a credit or as a deduction.

139

What kind of debt is not discharged in case of bankruptcy?

Claim was based on Willful or malicious misconduct of the debtor

140

When is trust property with an independent trustee includible in the grantor’s gross estate

A decedent’s gross estate generally includes all property in which the decedent had an ownership interest at time of death, including the value of revocable transfers, as well as all transfers over which the decedent had, at the time of death, the power to change the enjoyment of what was transferred by altering, amending, revoking, or terminating an interest.

141

Who is liable in the preimcorporations contracts?

A promoter is personally liable on preincorporation contracts because the promoter cannot be an agent when the principal is not yet in existence. This is true even if the corporation is later formed and adopts the contract. Exceptions to this rule are when a novation occurs or when parties agree in advance to not hold the promoter liable. Neither of these happened in this fact pattern.

142

What kind of moving expenses are not deductible?

Indirect moving expenses such as premove househunting, temporary living expenses, and meals while moving are not deductible.

143

What is unlawful under Rule 10b-5 of the Securities Exchange Act of 1934?

it is unlawful to use any manipulative or deceptive devices in the purchase or sale of securities if the mail, interstate commerce, or a national stock exchange is used.

144

When can an accrual tax-basis payer accrue an expense?

if the transaction meets both an all-events test (existence of liability established and amount can be determined with reasonable accuracy) and an economic performance test (property or service are actually provided)

145

What is the purpose of Schedule M-2 of Form 1120?

"Analyzes changes in a corporation’s Unappropriated Retained Earnings per books between the beginning and end of the year. Balance at beginning of year Add: Net income per books Other increases Less: Dividends to shareholders Other decreases (e.g., addition to reserve for contingencies) Balance at end of year"

146

What is the basis of like-kind property received?

"The basis of like-kind property received is the basis of like-kind property given. (a)+ Gain recognized(b)+ Basis of boot given (money or property not of a like-kindExample :On July 1, 2015, Louis Herr exchanged an office building having a fair market value of $400,000, for cash of $80,000 plus an apartment building having a fair market value of $320,000. Herr’s adjusted basis for the office building was $250,000. How much gain should Herr recognize in his 2015 income tax return?Herr’s realized gain is computed as follows:FMV of building received $ 320,000Cash received 80,000 Amount realized $ 400,000Basis of property exchanged (250,000)Gain realized $ 150,000 Since boot was received in the form of cash, the realized gain is recognized to the extent of the $80,000 cash received."

147

What is the advantage of LLC over partnership?

The owner may participate in management while limiting personal liability (a partner who participates in the management of a partnership would be considered a general partner and would have unlimited liability)

148

What is a negociable time draft?

Instrument which meets all of the requirements of a negotiable instrument and is a three-party instrument which contains an order on its face, payable at some future, and determinable time.

149

How many parties are involved in a promisory note?

Only 2

150

Which items do not qualify under the like-kind exchange rule?

Exchanges involving property held primarily for sale; stocks, bonds, notes and other securities; partnership interests; certificates trusts or beneficial interest; and evidences of indebtedness are not considered "like-kind" exchanges