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Flashcards in REG 5 Deck (150):
1

To who can recover a third person injured by the agent’s or employee’s tortious act, when committed within the course of employment

Any third person injured by the agent’s or employee’s tortious act, when committed within the course of employment, can proceed against either the employee or employer

2

When the employee is held liable for a tortious act which was committed upon direct instructions from the employer, what right does he have for indemnification?

When the employee is held liable for a tortious act which was committed upon direct instructions from the employer, he has a right of indemnification against the employer for any damages he must pay a third person.

3

Who elects method used to depreciate partnership property in a partnership?

The method used to depreciate partnership property is an election made by the partnership and may be any method approved by the IRS.

4

Must all the partners of a partnership apply the same depreciation method for property?

The partnership is not restricted to using the same method as used by its "principal partner."

5

Are partners bound by the depreciation method that the partnership elects to use?

Since the election is made at the partnership level, and not by each individual partner, partners are bound by whatever depreciation method that the partnership elects to use.

6

No gain or loss is recognized if property is transferred to a corporation solely in exchange for stock if the transferors of property, in the aggregate, own at least 80% of the stock of the corporation after the exchange : what is including the term "prop

The term property includes cash, but it does not include services.Example : Quigley, Roberk, and Storm form a corporation. Quigley exchanges $25,000 of legal services for 30 shares of stock. Roberk exchanges land with a basis of $10,000 and a fair market value of $100,000 for 60 shares of stock. Storm exchanges $10,000 cash for 10 shares of stock. What amount of income should each shareholder recognize?Here, although Roberk and Storm transfer property, they own only 70 of the corporation's 100 outstanding shares after the exchange and fail the 80% control test. As a result, the formation of the corporation is taxable and Roberk must recognize a gain of $100,000 ? $10,000 = $90,000 on the transfer of land. Of course Storm doesn't recognize any gain on the transfer of cash, and Quigley must recognize compensation income of $25,000 on the receipt of stock in exchange for services.

7

Who are the oonly person able to accept a contract?

Offers to contract may only be accepted by the person to whom they were made. Offers are not assignable to others unless the offeror consents to such assignment.

8

When are claims for services rendered by insiders allowed?

Claims for services rendered by insiders (a director is an insider) are only allowed to the extent the court decides the claims are reasonable. Even if the court decides the claim is reasonable, the priority given to wage claims in a bankruptcy proceeding does not include salary claims by officers of the corporation.

9

What is the effect of perfection of a security interest?

Perfection by filing a financing statement will not defeat all other parties who acquire an interest in the same collateral; rather, perfection by filing gives the secured party his best possible rights in the collateral. For example, purchasers from a merchant in the ordinary course of business take the collateral free from any prior perfected security interest. The only time a purchaser would take the collateral subject to a prior perfected security interest would be when the purchaser knew that the merchant was selling the goods in violation of a financing statement.

10

When a partner’s share of partnership liabilities increases, what is the effect on that partner’s basis in the partnership

Since partners are individually liable for their share of partnership liabilities, a change in the amount of partnership liabilities affects a partner’s basis for a partnership interest. An increase in partnership liabilities increases each partner’s basis in the partnership by each partner’s share of the increase

11

What is the title insurance not covering?

Title insurance insures against all defects of record; however, it does not insure against those defects which would be disclosed by physical inspection of the property or those defects listed as exceptions on the face of the policy.

12

Can a title insurance be transferred to a purchaser?

Even though the property may be transferred to a subsequent owner, the title insurance does not run with the property and cannot be transferred to the purchaser.

13

How must be treated a director's profit derived at the corporation’s expense?

If a directo's profit is derived at the corporation’s expense, the director must account for the profit made.

14

Is Mortgagee required to acknowledge a mortgage?

The mortgagee is not required to acknowledge the mortgage although the mortgage must be in writing and signed by the mortgagor, the party to be charged.

15

Must a mortgage in real property indicate the amount of indebtedness and the rate of interest payable thereon?

No. However, these are included in most mortgages.

16

Is consideration for mortgage reuqired to be stated?

It is not required that the mortgage state the consideration given for the mortgage.

17

Must a mortgage be delivered to the mortgagee?

A mortgage is an interest in real property used to secure payment for a loan. A mortgage must be delivered to the mortgagee to secure the obligation due to the mortgagee.

18

Jane, a 25% partner in Excel Partnership, received a $30,000 guaranteed payment in 2014 for services rendered to the partnership. Guaranteed payments to other partners for services rendered totaled $50,000. Excel’s 2014 partnership income consisted of
N

A partnership is a pass-through entity and its items of income and deduction pass through to be reported on partners Ereturns even though not distributed. The amount to be reported by Jane consists of her guaranteed payment, plus her 25% share of the partnership’s business income and capital gains. Since Jane’s $30,000 guaranteed payment and the $50,000 of guaranteed payments to other partners are for deductible services rendered to the partnership, they must be subtracted from the partnership’s net business income before guaranteed payments of $160,000 to determine the amount of net business income to be allocated among partners. Jane’s reportable income from the partnership includesGuaranteed payment $30,000Business income [($160,000 ? $80,000) ÁE25%] 20,000Net long-term capital gain ($50,000 ÁE25%) 12,500 Total $62,500

19

How are stock redemption treated?

A stock redemption qualifies for exchange treatment generally resulting in capital gain or loss if the redemption is a partial liquidation, or reduces the shareholder’s interest in the corporation and after the redemption the shareholder owns (directly and constructively) less than 50% of the corporation’s stock.

20

The partnership of Bond and Felton has a fiscal year ending September 30. John Bond files his tax return on a calendar-year basis. The partnership paid Bond a guaranteed salary of $1,000 per month during the calendar year 2013 and $1,500 a month during th

Both distributable shares of income and guaranteed payments are reported by partners for the year in which the end of the partnership fiscal year occurs. Thus, Bond would calculate his income as follows:Guaranteed payments (10/1/13 to 9/30/14): $1,000 ÁE3 months =$ 3,000$1,500 ÁE9 months= 13,500Share of ordinary income$80,000 ÁE40% = 32,000 Total = $48,500

21

What is he requirement to be liable on an instrument

No person is liable on an instrument unless his signature appears thereon.

22

Does a bank has obligation to certify a check if adequate funds are on the account?

No. Bank is under no obligation to certify a check.

23

What is impliying signature of a check?

Certification of a check constitutes acceptance; therefore, signator becomes primarily liable as an acceptor and engages that it will pay the instrument according to its tenor at the time of its acceptance.

24

What are the requirements of the uniform capitalization rules regarding cost in acquiring property for resale?

The uniform capitalization rules generally require that all costs incurred in acquiring property for resale must be capitalized as part of the cost of inventory. The costs that must be capitalized include the costs of purchasing, handling, processing, repackaging and assembly, as well as the costs of off-site storage. An off-site storage facility is one that is not physically attached to, nor an integral part of, a retail sales facility.

25

What is the treatement of unreimbursed employee business expenses?

Unreimbursed employee business expenses are deductible as a miscellaneous itemized deduction subject to the 2% of AGI floor.

26

What is the treatement of real estate taxes?

Real estate taxes are fully deductible as an itemized deduction

27

What is the treatement of gambling winnings/losses?

Gambling losses up to the amount of gambling winnings are deductible as a miscellaneous itemized deduction not subject to the 2% of AGI floor.

28

What is the treatement of unreimbursed medical expenses?

Unreimbursed medical expenses are deductible as an itemized deduction subject to a 10% AGI floor.

29

Which credit may reduce federal estate tax?

The federal estate tax may be reduced by a credit for foreign death taxes.

30

Which credits do not reduce federal estate tax?

No federal estate tax credit is available for foreign gift taxes, foreign income taxes, or foreign intangible property taxes.

31

What is required for the proxy statement of a reporting comaopny solliciting proxies Under the Securities Exchange Act of 1934?

Under the Securities Exchange Act of 1934, a reporting company that is soliciting proxies must file its proxy statement with the SEC. There is no exemption if the company has only one class of stock.

32

if a person entrusts possession of goods to a merchant, or to his/her agent, who deals in those goods,what is the condition to obtains title to those goods?

if a person entrusts possession of goods to a merchant, or to his/her agent, who deals in those goods, a good-faith purchaser for value obtains title to those goods unless s/he knew the merchant or agent did not own the goods.

33

What is a trade acceptance?

A trade acceptance is a special type of draft in which a seller of goods extends credit to the buyer by drawing a draft on that buyer directing the buyer to pay the seller a sum of money on a specified date. The seller is therefore both the drawer and payee in a trade acceptance.

34

When may a trustee in bankruptcy may set aside statutory liens?

a trustee in bankruptcy may set aside statutory liens that become effective when the bankruptcy petition is filed but may not set aside those that were effective before the bankruptcy petition was filed. Therefore, this answer is correct.

35

What are the requirement for an instrument to be negociable?

For an instrument to be negotiable, it must be written and signed by the maker or drawer and contain an unconditional promise or order to pay a fixed amount in money. It must also be payable at a definite time or on demand. It must be payable to order or to bearer, except in the case of a check. The instrument in the question satisfies all of these requirements and is a negotiable note.

36

Whart does a decedent’s gross estate generally include?

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

37

A trust with an independent trustee that was established for a minor : included or excluded from grantor's gross estate?

a trust with an independent trustee that was established for a minor would be excluded from a grantor’s gross estate.

38

An income beneficiary disclaims trust property, which then passes to the remainderman who happens to be the grantor’s friend : is property to be included oor not in the grantor’s gross estate?

the fact that an income beneficiary disclaims trust property, which then passes to the remainderman who happens to be the grantor’s friend would not cause the property to be included in the grantor’s gross estate.

39

If business property is completely destroyed, what is the amount of casualty loss deduction if business property is completely destroyed?

If business property is completely destroyed, the amount of casualty loss deduction is the property’s adjusted basis immediately before the casualty, less any insurance reimbursement.

40

To who are applying "$100 floor" and "10% of adjusted gross income" limitations

the "$100 floor" and "10% of adjusted gross income" limitations that apply to nonbusiness casualty losses of individuals do not apply to business casualty losses.

41

Whart is the effect on dividends received from affiliated group if a consolidated return is filed?

An affiliated group of corporations (i.e., corporations connected through 80% or more stock ownership) can elect to file a consolidated tax return, instead of filing separate tax returns. If a consolidated return is filed, dividends received from affiliated group members are eliminated in the consolidation process, and are not reported on the consolidated tax return.

42

For destroyed, damaged, or stolen property, when does the replacement period ends?

For destroyed, damaged, or stolen property, the replacement period ends 2 years after the close of the taxable year in which the gain is first realized.

43

What is a composition of creditors?

A composition of creditors occurs when creditors make an agreement with each other to accept less than the full debts as full satisfaction of those debts. Once the debtor performs under the agreement, the debts are discharged, so this generally causes a release of the debtor from its debts.

44

What is an assignment for the benefit of creditors?

An assignment for the benefit of creditors does not generally cause the release of the debtor from it debts. In this case the creditors do not have to agree to the assignment. The debtor assigns its assets to a trustee who sells the assets for cash. The cash is then paid out to creditors who agree to accept a stipulated amount to release their claims. The assignment itself, however, does not cause the claims to be released because at that point the creditors have not agreed to do so.

45

How are treated distribution as dividends in a S corporation since inception?

A S corporation since inception does not have any earnings and profits and its distributions will not be taxed as dividends : distributions will be treated as a nontaxable return of stock basis for each shareholder until the shareholder's stock basis is fully recovered. Thereafter, distributions in excess of stock basis will be taxed as capital gain, just as if the shareholder had sold the stock.

46

In 2015, Dave Burr acquired a 20% interest in a partnership by contributing a parcel of land. At the time of Burr’s contribution, the land had a fair market value of $35,000, an adjusted basis to Burr of $8,000, and was subject to a mortgage of $12,000.

Burr’s basis is the $8,000 adjusted basis of the land contributed reduced (but not below zero) by the net decrease in his individual liabilities resulting from the assumption by the partnership of his liabilities (80% ÁE$12,000 = $9,600). Thus, Burr’s basis for the partnership interest is zero. Note that Burr would have to recognize a gain of $9,600 ? $8,000 = $1,600.

47

Are general offering or solicitation permitted under Rule 505 of Regulation D?

No general offering or solicitation is permitted under Rule 505 of Regulation D.

48

Gibson purchased stock with a fair market value of $14,000 from Gibson’s adult child for $12,000. The child’s cost basis in the stock at the date of sale was $16,000. Gibson sold the same stock to an unrelated party for $18,000. What is Gibson’s recogni

The adult child sold the stock to Gibson for $12,000 when the stock was worth $14,000. As a result, the transfer of property to Gibson is treated as part sale and part gift. As such, the adult child (transferor) is not allowed to recognize a loss, and is treated as having made a gift to Gibson equal to the difference between the stock’s FMV of $14,000 and the selling price of $12,000, or $2,000. Where a transfer of property is in part a sale and in part a gift, the basis of the property in the hands of the transferee (Gibson) is generally the greater of (1) the amount paid by the transferee for the property ($12,000), or (2) the transferor’s basis for the property at the time of the transfer ($16,000). As a result, Gibson’s basis for the stock is $16,000, and the subsequent sale of the stock to an unrelated party for $18,000 results in Gibson recognizing a gain of $2,000.

49

When is a partnership terminated for tax purposes?

A partnership is terminated for tax purposes when there is a sale or exchange of 50% or more of the total interests in partnership capital and profits within any 12-month period.

50

Concerning breach of an implied warranty when does the statute of limitations begins to run?

when a warranty explicitly extends to the future performance of the goods, a cause of action for breach of that warranty must be brought within the statute of limitations period as measured from the time the breach was discovered or should have been discovered. If the warranty does not explicitly extend to future performance, a cause of action for breach accrues at tender of delivery.

51

How much can be reduce the UCC statutory period if agreed in original contract?

in original contract, can be agreed to reduce the UCC statutory period of 4 years to a period of not less than 1 year. Under no circumstances, however, may the parties extend the statute of limitations.

52

Can a plaintiff claim that that the running of the statute of limitations has been tolled?

A plaintiff may, in proper circumstances (i.e., disability of plaintiff to sue or defendant’s absence from the jurisdiction), claim that the running of the statute of limitations has been tolled (stopped).

53

Is automatic stay valid against collection of alimony?

An automatic stay is valid against the garnishment of the debtor’s wages. However, the automatic stay is not effective to prevent the collection of alimony, child support, or other matters related to domestic disputes.

54

Is The NOL carryover deductible in computing the current years ENOL?

The NOL carryover is not deductible in computing the current years ENOL.

55

Is The DRD allowed in computing NOL?

The DRD is allowed in computing NOL

56

What is the treatment of advertising costs?

Advertising costs are deductible as an ordinary and necessary business expense if they are reasonable in amount and bear a reasonable relation to the business. Deductible expenses may be for the purpose of gaining immediate sales or developing goodwill. Advertising costs are deductible even though the advertising program is expected to result in benefits extending over a period of years.

57

What is EPA objective?

The Environmental Protection Agency (EPA) is set up to insure compliance with environmental protection laws.

58

Can private citizen bring suits against EPA to enforce compliance with the law?

The EPA generally uses civil suits more than criminal prosecutions. Private citizens may also bring suits against the EPA to enforce compliance with the laws. Citizens or the state may also bring their own suits against the violators under the environmental statutes. Furthermore, the EPA may refer both civil and criminal actions to the Department of Justice.

59

What I the realized gain recognized on a like-kind exchange of investment property?

in a like-kind exchange of investment property, a realized gain is recognized to the extent of un-like (boot) property received.

60

How is considered an item if removal of such? item would cause material harm to real property.

It is generally held that an item has become a fixture

61

How long last the filing of a financing statement?

Filing a financing statement lasts for five years and can be continued with a continuation statement if filed within six months of expiration. Financing statements can be refiled for each new five-year period.

62

What does retention of the benefits of a contract constitute when the agent’s act was outside the scope of his authority?

Although the agent’s act was outside the scope of his authority, the principal may, nevertheless, ratify the contract. Retention of the benefits of the contract constitutes implied ratification.

63

How is distribution of appreciated property treated?

If a corporation distributes appreciated property, it must recognize gain to the extent that the property’s fair market value exceeds its basis.

64

How is The amount of distribution to a shareholder measured?

The amount of distribution to a shareholder is measured by the amount of cash and fair market value of noncash property received.

65

When does A 6-year statute of limitations applies?

A 6-year statute of limitations applies if gross income omitted from the return exceeds 25% of the gross income reported on the return. For this purpose, gross income of a business includes total gross receipts before subtracting cost of goods sold and deductions.

66

Which state and local taxes are deductible as an itemized expense?

Certain state and local taxes are deductible as an itemized expense during the year in which the taxes were actually paid. Deductible taxes include income and real property. State and local fees are not deductible. Federal income taxes also are not deductible.

67

Which medical expenses are allowable for deduction?

Only medical expenses in excess of 10% of AGI are allowable as a deduction( the adjusted gross income percentage threshold).

68

Are assessments for public improvements, that tend to increase the value of the taxpayer's property deductible?

Assessments for public improvements, that tend to increase the value of the taxpayer's property (whether or not the value actually increases), generally, are not deductible. However, assessments may be deducted to the extent that the taxpayer can prove the assessment is allocable to maintenance.

69

Which are the items subject to the 2 percent of adjusted income floor.

Job expenses and other miscellaneous deductions are items subject to the 2 percent of adjusted income floor.

70

Which state and local taxes are allowed with the realty taxes as an itemized deduction for taxes?

Deductible state and local taxes are: personal property, real property, income taxes, war profits, excess profits, and generation skipping transfer taxes.

71

What is the only tax deductible in arriving at adjusted gross income?

The only tax deductible in arriving at adjusted gross income is one-half of the taxpayer's self employment tax.

72

To which extent is investment interest expense is deductible?

Investment interest expense is deductible to the extent of net investment income. Net investment income is defined as investment income less noninterest investment expenses

73

When is deduction taken on qualified medical expenses paid with borrowed funds?

Taxpayers may deduct the qualified medical expenses incurred for both their treatment and the treatment of spouses and dependents. These medical expenses only may be claimed in the year the expenses were paid. If the medical expenses were paid with borrowed funds, as credit cards are considered, the deduction still is taken the year the medical expenses were paid, not in the year the borrowed funds were repaid.

74

What is the limit of a noncorporate taxpayer's deduction for interest on investment indebtedness?

A noncorporate taxpayer's deduction for interest on investment indebtedness is limited to the taxpayer's net investment income.

75

What is Interest on investment indebtedness?

Interest on investment indebtedness is interest paid or accrued that is allocable to property held for investment.

76

When are medical expenses deductible?

Medical expenses paid by an individual are deductible in the year paid.

77

Are Medicare insurance premiums deductible expenses?

Medicare insurance premiums are a deductible expense.

78

When does casualty losses occur?

Casualty losses occur when property is completely or partially destroyed due to an identifiable event that was sudden, unexpected, or unusual in nature.

79

Is decline of value of a property considered casualty loss?

The property must be damaged, not just decline in value to be considered casualty loss.

80

How are treated casualty losses?

The amount of the casualty loss that is deductible is reduced by any insurance proceeds received by the taxpayer. While casualty losses are deductible, any insurance premiums to cover casualty losses are nondeductible.

81

When can miscellaneous itemized deductions be deducted?

Miscellaneous itemized deductions only may be deducted if they exceed two percent of the taxpayer's adjusted gross income.

82

Give example of miscellaneous itemzed deductions

Miscellaneous itemized deductions include: an individual's tax return preparation fee; investment expenses deductible under Code Section 212, including custodial fees for a brokerage account; job related educational expenses, including subscription to professional journals; and unreimbursed employee expenses. Job related educational expenses only may be deducted if incurred to improve or maintain skills required in the taxpayer's business or employment.

83

How much can be deduct when individual taxpayers make charitable contributions in connection with admission to an entertainment event?

When individual taxpayers make charitable contributions in connection with admission to an entertainment event, the individual taxpayer only may deduct the difference between amount paid for admission and the fair value of admission. As the taxpayer is viewed as receiving services equal to the fair value of admission, only the portion exceeding the fair value of admission is viewed as a gift.

84

What can be deductible on ordinary income? (FMV or cost?)

A donated artwork contribution is considered ordinary income property if held less than 1 year and amount of deduction is lower of cost or market value

85

What can be deductible on capital gain property? (FMV or cost?)

A donated artwork contribution is considered capital gain property if held more than 1 year and deduction is market value

86

To which level of AGI are Long term capital gain charitable contribution deductible?

the deduction is limited to 30% of his AGI (non public)

87

To which level of AGI are charitable contribution to public charities deductible?

An individual's charitable contribution to public charities may not exceed 50 percent of the individual's adjusted gross income. The 50 percent deduction ceiling applies to contributions made to: 1. churches; 2.educational institutions that maintain a regular faculty and curriculum; 3.hospitals and medical schools; 4.organizations supported by the government that hold property and/or investments for the benefit of a college or university; 5.federal, state or local governmental units; and 6.organizations normally receiving most of its support from the public or a governmental unit. The amount that exceeds the 50 percent deduction ceiling may be carried forward for 5 years.

88

Are The taxpayer's gambling losses itemized deduction not subject to the 2 percent adjusted gross income floor?

The taxpayer's gambling losses may be deducted, but only to the extent of the taxpayer's gambling winnings and only as an itemized deduction not subject to the 2 percent adjusted gross income floor.

89

Are dues considered as deductible expenses?

No

90

How much can meal and entertainment expenses be deducted?

At 50%

91

What is the limit applied on ticket to entertainment activity?

Face value of the ticket

92

To which amount is the deduction for business gifts limited?

The deduction for business gifts is limited to $25 per donee per year

93

Is inheritance included in AGI?

No

94

Are contract between agent and principal required?

The agent’s duties are by necessity based on contract law.

95

What is the remedy in case of innocent misstatement?

Under innocent misrepresentation a contract is voidable by one party if the other party has misrepresented a material fact. Since the misrepresentation is an innocent misstatement made in good faith (i.e., no scienter), the only remedy available to the party voiding the contract is rescission.

96

How can a debtor regain property in case of voluntary bankruptcy

The court appoints an interim trustee and then the debtor may regain the property in possession of the interim trustee by filing a court-approved bond.

97

When can a payment of less than the originally agreed-upon price serve as complete discharge of an obligation under a contract?

A payment of less than the originally agreed-upon price will serve as complete discharge of an obligation under a contract only if there is a bona fide dispute as to the amount owed, and both parties agree to the lesser sum

98

What does the value requirement of the holder in due course concept demand?

The value requirement of the holder in due course concept demands the holder give executed value.

99

What does Section 3-302 (d) of the UCC provides in situations where the holder provides partial value?

Section 3-302 (d) of the UCC provides in situations where the holder provides partial value that the holder is entitled to the percentage of the value provided, rather than just the actual value provided.

100

What is inducing the concept of "joint and several liability" of partners?

Under the Revised Uniform Partnership Act, the partners have joint and several liability for breaches of contract as well as for torts. This allows third parties to sue them together or separately.

101

What is the basis for computing a gain if property is acquired by gift?

If property is acquired by gift, its basis for computing a gain is the same as the donor’s adjusted basis, increased by any gift tax paid attributable to the net appreciation in value of the gift.

102

Are gain or loss is recognized upon the complete liquidation of a partner’s partnership interest?

Generally no gain or loss is recognized upon the complete liquidation of a partner’s partnership interest, although a loss can be recognized if the liquidating distribution consists of only cash, receivables, and inventory.

103

In a partnership when is Recognition of loss is disallowed on a sale or exchange?

Recognition of loss is disallowed on a sale or exchange between a partnership and a person who owns (directly or constructively) more than a 50% partnership interest

104

How must a S Corporation items be divided?

As a pass-through entity, an S corporation’s items must be divided into (1) nonseparately stated income or loss from trade or business activities, and (2) items of income, loss, deduction, and credit, the separate treatment of which could affect the tax liability of any shareholder.

105

To what The "$100 floor" and "10% of adjusted gross income" limitations is applying?

The "$100 floor" and "10% of adjusted gross income" limitations that apply to nonbusiness casualty losses of individuals do not apply to business casualty losses.

106

What are the condition for attachment of interests?

In order for a security interest to attach, there must be a security agreement. It may be oral if the secured party obtains possession or control of the collateral. In either case, the debtor must have agreed to the security interest. The secured party must also give value and the debtor must have rights in the collateral.

107

How may a seller who discovers that an insolvent buyer has received goods on credit reclaim the goods?

A seller who discovers that an insolvent buyer has received goods on credit may reclaim the goods by making a demand for their return within 10 days after receipt of the goods by the buyer. This 10-day limitation, however, does not apply if the buyer made a written misrepresentation of its solvency within 3 months prior to its receipt of the goods

108

When is perfection accomplished

Perfection is accomplished by completing one of the following steps: filing, the secured party taking possession of the collateral, or in the case of a purchase money security interest in consumer goods, by attachment alone

109

Explain rules of Rule 506 D regarding resell of securities

Pursuant to Rule 506 under Regulation D of the Securities Act of 1933, the issuer must restrict the initial purchasers Eright to resell the securities. In general, the securities must be held for 2 years to avoid losing the exemption from the full registration requirements of the 1933 Act.

110

Is fair value of equipment a factor of rejection by a trustee?

The trustee may elect to reject the equipment lease regardless of the fair market value of the equipment.

111

What are the options available to trustee regarding unexpired leases?

the trustee in bankruptcy is given the option, subject to court approval, to (1) assume and perform the unexpired lease, (2) assume and assign the unexpired lease to a third party, or (3) reject the unexpired lease. In a liquidation case, the trustee must act to assume within 60 days after the order for relief is entered. If not assumed within this time, the lease is deemed rejected.

112

When is the remedy for specific performance is used?

The remedy of specific performance is used when money damages will not sufficiently compensate the afflicted party due to the unique nature of the subject matter of the contract. In a contract for the sale of land, the buyer has the right to enforce the agreement by seeking the remedy of specific performance because real property is considered unique. Another remedy for this breach of contract would be for the buyer to seek compensatory damages. If the buyer desires, s/he may seek this remedy instead of specific performance.

113

Are injured party allowed to seek punitive damages?

An injured party is generally not allowed to seek punitive damages. Punitive damages are awarded only when the court is seeking to punish a party for their improper actions and are not usually granted in breach of contract actions.

114

When can secired antecedents debt be set aside by the trustee?

Security interests given by debtors to secure antecedent debts may be set aside by the trustee in bankruptcy when given within the previous ninety days.

115

What does preferential transfer include?

Preferential transfers include those made within the previous ninety days while insolvent and include those made for antecedent debts including a security interest given by a debtor to secure antecedent debts.

116

How is Amt computed?

The alternative minimum tax for noncorporate taxpayers is computed by applying a two-tiered rate schedule to a taxpayer’s alternative minimum tax base. A 26% rate applies to the first $182,500 of a taxpayer’s alternative minimum taxable income (AMTI) in excess of the exemption amount. A 28% rate applies to AMTI greater than $182,500 ($91,250 for married taxpayers filing separately) above the exemption amount. This tax applies to the extent that a taxpayer’s AMT exceeds the amount of regular tax.

117

Explain the doctrine osf substantial performance

under the doctrine of substantial performance, a contract obligation may be discharged even though the performance tendered was not in complete conformity with the terms of the agreement. Under this doctrine, if it can be shown that the defect in performance was only minor in nature, a good-faith effort was made to conform completely with the terms of the agreement, and if the performing party is willing to accept a decrease in compensation equivalent to the amount of the minor defect in performance, the contractual obligation will be discharged.

118

Are charitable contribution includes in computing ordinary income?

Since charitable contributions are subject to percentage limitations, they must be separately passed through to partners and cannot be included in computing ordinary income

119

How are A dividend distribution from one member to another member of an affiliated group during a consolidated return year treated?

A dividend distribution from one member to another member of an affiliated group during a consolidated return year is eliminated in determining consolidated taxable income. Note, that if a consolidated return is not filed, dividends received from an affiliated corporation (80% or more ownership) are eligible for a 100% dividends-received deduction.

120

How much is the deduction allowed per donee for gifts of present interests?

Annual exclusion?of up to $14,000 per donee is allowed for gifts of present interests (not future interests). A present interest is an unrestricted right to the immediate use, possession, or enjoyment of property or the income from property. A future interest includes reversions, remainders, and other interests that are limited to commence in use, possession, or enjoyment at some future date or time.

121

What must be done to let the buyer know that he is receiving less than warranty of title?

Under the UCC, every seller warrants that the goods sold are free from any security interest or lien of which the buyer has no actual knowledge. This warranty of title may only be disclaimed by specific language or circumstances which give the buyer reason to know that s/he is receiving less than full title. A seller’s statement that s/he is selling only such right or title that s/he has will exclude the warranty of title.

122

Thayer Corporation purchased an apartment building on January 10, 2009 for $200,000. The building was depreciated using the straight-line method. On February 20, 2015, the building was sold for $220,000, when the asset balance net of accumulated depreciat

Since the building qualifies as Sec. 1250 property and was sold by a corporation, it is subject to the recapture provisions of both Sec. 1250 and Sec. 291. Under Sec. 1250, the gain recognized on the sale must be recaptured as ordinary income to the extent of "excess" depreciation (i.e., depreciation deducted in excess of straight-line). Because the building was depreciated using the straight-line method, there is no Sec. 1250 recapture. However, Sec. 291 recaptures 20% of the difference between the ordinary income that would have been recognized had the building been Sec. 1245 property ($30,000) and the ordinary income recognized under Sec. 1250. Thus, ordinary income is $6,000 ($30,000 ÁE20%) and the remaining gain of $44,000 ($50,000 ? $6,000) is treated as Sec. 1231 gain.

123

What is the character of marital deduction?

In computing the gift tax, there is an unlimited marital deduction that applies to gifts to a taxpayer’s spouse after first subtracting the annual exclusion

124

What does an endorser of a negotiable instrument agree if the instrument is not paid?

An endorser of a negotiable instrument agrees to pay if the instrument is not paid.

125

What is NOL?

A NOL generally represents a loss from the conduct of a trade or business and can be carried back 2 years and forward 20 years to offset income in the carryback and carryforward years. Since a NOL generally represents a business loss, an individual taxpayer’s personal exemptions and an excess of nonbusiness deductions over nonbusiness income cannot be subtracted in computing the NOL. Nonbusiness deductions generally include itemized deductions as well as the standard deduction if the taxpayer does not itemize.

126

Which of temporary differences (e.g., accelerated depreciation on tax return and straight-line on books) and permanent differences (e.g., tax-exempt interest) must be considered to convert book income to taxable income?

The reconciliation of income per books with income per return is accomplished on Schedule M-1 of Form 1120. Both temporary differences (e.g., accelerated depreciation on tax return and straight-line on books) and permanent differences (e.g., tax-exempt interest) must be considered to convert book income to taxable income.

127

What kind of principal may not ratify unauthorized contracts?

undisclosed principal may not ratify unauthorized contracts

128

Explain PHC

The personal holding company (PHC) tax is self-assessed by a corporation filing a Schedule PH along with its regular Form 1120 tax return. The PHC tax may be imposed if more than 50% of a corporation’s stock is owned by 5 or fewer individuals, and 60% or more of the corporation’s adjusted ordinary gross income is PHC income. The penalty tax is assessed against undistributed PHC income, which may be reduced by dividend distributions.

129

Do the lost-income policy does not qualify as medical insurance, and the nonprescription drugs qualify as deductible medical expenses?

The lost-income policy does not qualify as medical insurance, and the nonprescription drugs do not qualify as deductible medical expenses.

130

What is the general business credit?

The general business credit is a combination of several credits that provide uniform rules for current and carryback-carryover years. The general business credit is composed of numerous credits including the investment credit, work opportunity credit, alcohol fuels credit, research credit, low-income housing credit, enhanced oil recovery credit, disabled access credit, renewable electricity production credit, empowerment zone employment credit, Indian employment credit, employer social security credit, orphan drug credit, the new markets credit, the small employer pension plan start-up costs credit, and the employer-provided child care credit. A general business credit in excess of the limitation amount is carried back 1 year and forward 20 years to offset tax liability in those years.

131

in a jurisdiction having an accountant-client privilege statute, when can the CPA turn over workpapers without the client’s permission?

in a jurisdiction having an accountant-client privilege statute, the CPA generally may not turn over workpapers without the client’s permission. It is allowable to do so, however, for use in a quality review under AICPA authorization or to be given to the state CPA society quality control panel.

132

What happens if an issuer fails to meet the disclosure requirements of the Securities Act of 1933?

If an issuer fails to meet the disclosure requirements of the Securities Act of 1933, the buyer may ask for rescission of the sale.

133

From which amount of decendent's must an executor file a federal estate tax return (Form 706)?

For 2014, an executor must file a federal estate tax return (Form 706) if the gross estate of a decedent exceeds $5.34 million. If a decedent made lifetime taxable gifts such that the decedent’s tax credit was used to offset gift tax, the $5.34 million exemption amount must be reduced by the exemption equivalent of the unified credit that was used. Since neither Smith nor Jones made any lifetime taxable gifts, the filing requirement that applies to their estates is $5.34 million.

134

What is the required procedure for issuance of common stock to the public in interstate commerce?

Anyone planning to issue common stock must make a filing in those states that have laws governing such offerings and obtain their approval in addition to meeting the registration requirements.

135

How are recorded the transfer of a property to a partnership in exchange for a partnership interest?

No gain or loss is recognized on the transfer of a property to a partnership in exchange for a partnership interest.

136

What is the difference between tenancy in common and joint tenancy regarding right of survivorship?

Tenancy in common, unlike joint tenancy, does not have the right of survivorship. Under tenancy in common, a deceased tenant’s interest in real property will pass to the individual named in a will if the deceased died testate (with a valid will), or to her legal heir(s) if she died intestate (without a valid will).

137

What happens in case an holder obtain a certification of a check?

When a holder obtains certification of a check, the drawer and all prior endorsers are discharged from secondary liability and the bank alone becomes primarily liable.

138

Under the Bankruptcy Act, give one of the elements which must be established in proving that a preferential transfer was made

Under the Bankruptcy Act, one of the elements which must be established in proving that a preferential transfer was made is that the debtor was insolvent at the time of the transfer The Bankruptcy Act presumes that the debtor is insolvent during the 90 days prior to the date the petition was filed.Another one is the transfer involved an antecedent debt.

139

What is the effect once an agreement is reduced to a writing intended as the complete contract under the parol evidence rule?

the parol evidence rule states that once an agreement is reduced to a writing intended as the complete contract, the parties may not introduce oral or written evidence in an attempt to alter or contradict the terms of the agreement.

140

when a capital interest in a partnership is received as compensation for services rendered, must a taxpayer recognize income?

A taxpayer must recognize income when a capital interest in a partnership is received as compensation for services rendered. The amount of income to be reported is the fair market value of the partnership interest received

141

Must security agreements be in writing to be enforceable?

Generally, security agreements must be in writing to be enforceable. The primary exception to the writing requirement is if the secured party takes physical possession of the collateral, known as a pledge.

142

Is gain or loss is recognized upon the complete liquidation of a partner’s partnership interest?

Generally no gain or loss is recognized upon the complete liquidation of a partner’s partnership interest, although a loss can be recognized if the liquidating distribution consists of only cash, receivables, and inventory.

143

How is the beneficiary of a life insurance contract considered?

The beneficiary of a life insurance contract is an intended third-party donee beneficiary, and as such, can maintain an action against the insurance company in the event of default

144

What is the most important factor when deciding whether a person is an employee or an independent contractor for the purposes of Social Security legislation?

When deciding whether a person is an employee or an independent contractor for the purposes of Social Security legislation, the most important factor is whether the person’s performance is subject to the physical control of the employer.

145

To which amount is a limited partner liable for debts of the partnership?

A limited partner is not liable for debts of the partnership beyond the amount of her capital contribution

146

Does the lease stops at the death of the lessor?

The duties and benefits of the lease pass to the heirs of the lessor upon the lessor’s death.

147

Up to which amount can be tuition and medical expenses paid on behalf of a donee excluded

There is an unlimited exclusion for tuition or medical expenses paid on behalf of a donee.

148

What is the keogh plan?

A self-employed individual may contribute to a qualified retirement plan called a Keogh plan. The maximum contribution to a Keogh profit-sharing plan is the lesser of $52,000 (for 2014) or 100% of earned income. For this purpose, "earned income" is defined as net earnings from self-employment (i.e., business gross income minus allowable business deductions) reduced by the deduction for one-half of the self-employment tax, and the deductible Keogh contribution itself.

149

Jon Moseley, who retired on October 31, 2014, receives a monthly pension benefit of $900 payable for life. His life expectancy at the date of retirement is 20 years. The first payment was received on November 15, 2014. During his years of employment, Mose

This answer is correct. Annuities and pensions are excluded from taxable income to the extent that they represent a return of capital. Moseley’s contribution of $24,000 will be recovered pro rata over the life of the annuity. Under this rule, $100 per month ($24,000/240 months) is excluded from income.

150

What is the common rule to Rules 504, 505, and 506?

Under all of Rules 504, 505, and 506, the SEC must be notified within 15 days of the first sale of securities.