Topics You Should Know (Modules 1-6) Flashcards

Question

Is a principal responsible for the payment of an agent's personal checks?

Answer 1

No, the agent is liable

Answer 2

if their principal is partially disclosed or undisclosed

Answer 3

they authorized the agent's actions

Answer 4

provides regulations regarding the practice of an accountant before the IRS

Answer 5

provides regulations regarding the reporting and payment of taxes

Answer 6

State board of accountancy

Answer 7

A principal is liable for ALL AUTHORIZED misrepresentations, but not for all UNAUTHORIZED misrepresentations.

Answer 8

1. the principal is liable only if an EMPLOYEE makes the misrepresentation 2. an employee is a worker who tends to be paid wages or salary, has a long-term relationship with the principal, and is supervised by the principal

Answer 9

did NOT use the care of a REASONABLE accountant in the circumstances

Answer 10

1. Accountants are prohibited from disclosing to a nonaffiliated third party any NONPUBLIC PERSONAL INFORMATION about their clients 2. Accountants are required to develop, implement, and maintain a comprehensive INFORMATION SECURITY PROGRAM that outlines the ways in which they protect client information 3. Accountants are responsible for maintaining the confidentiality of information that is OUTSOURCED for processing

Answer 11

No, a CPA will NOT be held liable if negligence cannot be proved. The CPA excised due care.

Answer 12

1. Death or insanity/incompetency of the principal or agent 2. Bankruptcy (of the agent if it impairs his/her duties; of the principal if the agent no longer desires the relationship) 3. Change of law 4. Loss or destruction of subject matter

Answer 13

an intentional tort that is made with scienter or a KNOWLEDGE to deceive.

Answer 14

1. UCC Article 2 applies to contracts that involve the SALE OF GOODS 2. Common law applies to SERVICE and REAL ESTATE contracts 3. Where there are mixed contracts (sale of both goods and services), we look to the PRICE and the INTENT of the parties 4. Under common law, MODIFICATION of an existing contract must be supported by CONSIDERATION 5. Under the UCC, however, a contract may be MODIFIED either orally or in writing WITHOUT CONSIDERATION

Answer 15

1. offer 2. acceptance 3. consideration 4. capacity

Answer 16

A PROMISE is made by one party to the contract in exchange for a PROMISE from the other party to the contract. (e.g. Mary made the offer (promise) to buy Hal's desktop computer, and Hal accepted her offer by the promise to sell.)

Answer 17

A type of contract in which one side makes a PROMISE in exchange for an ACTION or performance from the other side. (e.g. Kay, an art collector, promised Hammer, an art student, that if Hammer could obtain certain rare artifacts within two weeks, Kay would pay for Hammer's postgraduate education.)

Answer 18

A contract that has NOT YET been fully performed by the involved parties (lease agreement...building and payments provided over the term of the lease)

Answer 19

A contract that HAS been fully performed by both parties to that contract

Answer 20

A contract imposed by the courts or by law when some performance has gone forward, even though there is NO express or implied contract. The law creates a quasi-contract for the parties to prevent unjust enrichment of one party by the other.

Answer 21

A contract formed, at least in part, based on the conduct of the parties or based on the factual circumstances.

Answer 22

A contract formed wholly by oral and/or written words.

Answer 23

does NOT require consideration | e.g. the knowledge of a sale of real estate was going to purchase

Answer 24

1. rejects the original offer | 2. follows the "mirror image" rule

Answer 25

Automatically terminate prior to Larkin's acceptance.

Answer 26

"invitations to trade" they invite a party (buyer) to make an offer; it is not itself an offer

Answer 27

made by a merchant in writing concerning an offer to sell goods

Answer 28

contains rules applying to many types of commercial contracts, including contracts related to the sale of goods, leasing of goods, use of negotiable instruments, banking transactions, letters of credit, documents of title for goods, investment securities, and secured transactions

Answer 29

An accord is an agreement to WAIVE LEGAL RIGHTS, releasing another party from legal obligations. Satisfaction is the actual PAYMENT of the amounts agreed to in the accord. Essentially, both parties to the contract have agreed to satisfy the contract in a DIFFERENT MANNER.

Answer 30

Past actions

Answer 31

1. Ambiguous terms—If the record of a contract has ambiguities, it is not fully integrated, and parol evidence can be introduced only to clean up the AMBIGUITY. 2. Obvious clerical or typographical error—In reducing oral contract into a record, parol evidence can be used for obvious typos and clerical ERRORS because, again, it is not fully integrated. 3. Incomplete contracts—Parol evidence can be admitted to “FILL IN” THE GAPS because an incomplete contract is not a fully integrated contract. 4. Contract defenses—The parol evidence rule does not prohibit the introduction of evidence that shows a defense to formation, such as FRAUD or DURESS.

Answer 32

Under the parol evidence rule, a fully integrated contract (one that is complete, unambiguous, and without defenses in formation) cannot be contradicted, varied, or altered by evidence of the parties' PRIOR negotiations, PRIOR agreements, or CONTEMPORANEOUS oral agreements.

Answer 33

If a contract has been finished, or fully performed, a party may then sue to enforce payment, even if the contract is not in writing.

Answer 34

A minor who enters into a contract has the right to DISAFFIRM the contract and AVOID LIABILITY at any time before reaching majority and for a reasonable time thereafter. The contract is VOIDABLE at the minor's option. When a contract is voidable, it can be set aside by one of the parties by choice. If the minor wants to honor the contract, the minor can do so—the contract is not void because a minor is involved. The contract may or may not be performed—at the minor's option.

Answer 35

The minor DOES NOT LOSE THE RIGHT TO DISAFFIRM DESPITE AN INABILITY TO RETURN THE CONSIDERATION. If the minor does not possess or control the consideration, the minor still has the right to disaffirm the contract. The minor need only return what he or she still has left of the consideration. If all a minor has left of a car that he or she purchased is a hubcap, the minor can return the hubcap and be entitled to recoup any money paid to the seller. The minor is ENTITLED BACK ANY CONSIDERATION that he or she has paid and cannot be held further on the contract.

Answer 36

False An adult IS BOUND to a valid contract and MUST PERFORM even though a minor had the right to disaffirm the contract.

Answer 37

1. Duress (threats) through PHYSICAL compulsion 2. Contracting with a person under GUARDIANSHIP 3. Fraud in the EXECUTION

Answer 38

1. Duress through IMPROPER threats 2. UNDUE INFLUENCE by a dominant party in a confidential relationship 3. Fraud in the INDUCEMENT (introductory statements)

Answer 39

a person who lacks mental capacity to manage their affairs and has been assigned a guardian

Answer 40

To have the right to rescind, the other side must have actually KNOWN of the error, or the error must be so large that the other side should REASONABLY HAVE KNOWN of the error.

Answer 41

A statute of limitations SETS A TIME LIMIT past which a LAWSUIT cannot be brought. Unless a problem is undiscoverable, the time limit STARTS to expire AT the time of the fraudulent transfer or BREACH. A statute of limitations is usually FOUR YEARS OR LESS.

Answer 42

No, only ONE party needs to sign

Answer 43

something that must be present or occur BEFORE a party has a duty to perform e.g. rezoning clause

Answer 44

something that must be present or occur AFTER a duty to perform has arisen

Answer 45

Each party's duty to perform under a contract is DEPENDENT upon the other party's absolute duty to perform at the same time

Answer 46

1. prevention of performance | 2. accord and satisfaction

Answer 47

the risk passes from seller to buyer when the goods are placed in the POSSESSION OF THE CARRIER (mail guy).

Answer 48

IDENTIFY GOODS by segregating them from general inventory and associating them with a specific contract

Answer 49

"Risk of loss" (in absence of express contract) passes from the seller to the buyer upon TENDER OR DELIVERY of the goods at the purchaser's loading dock.

Answer 50

risk of loss passes to the buyer upon the seller's "tender" of delivery. Delivery is tendered when the goods are made available for a REASONABLE TIME FOR PICK-UP by the buyer.

Answer 51

Parties agree in advance what DAMAGES will be if there is a breach. To be enforceable, the AMOUNT must bear a REASONABLE relationship to the harm done and NOT BE A PENALTY.

Answer 52

Requiring the other party to perform the contract; available when there are RARE goods (antiques, patents) or for buyers of LAND (land is unique).

Answer 53

Damages awarded to PUNISH A WRONGDOER. Punitive damages are rarely given in breach of contract cases, with the example often used on the exam being in the case of FRAUD in the inducement in formation of the contract.

Answer 54

the amount of money that will put the nonbreaching party in the POSITION he or she would have occupied HAD NO BREACH OCCURRED

Answer 55

has to do with RECOVERING IDENTIFIED PROPERTY that is being improperly held by the seller when the buyer cannot cover

Answer 56

BUYER notifies the seller that it INTENDS TO BREACH the contract

Answer 57

1. right to CANCEL the contract (may suspend the buyer's performance and may prevent the carrier from making the delivery of the goods) 2. right to RECOVER DAMAGES (e.g. resell goods that were identified to the contract and recover the difference between the contract price and resell price)

Answer 58

Agent acts outside the grant of ACTUAL (express or implied) authority

Answer 59

express and implied (both=actual) authority apparent authority is IMPOSSIBLE because the third party will not be able to view a principal's actions to reasonably believe that an agent has authority to do something

Answer 60

“actual authority”

Answer 61

MUTUALITY of consideration (i.e., that each party is bound to give consideration in exchange for the consideration being given by the other party to the contract)

Answer 62

occurs when one party entering into a contract is so GREATLY INFLUENCED by his/her RELATIONSHIP with the second party of the contract that the first party DOES NOT EXERCISE FREE WILL in entering into the contract

Answer 63

a three‐party agreement between the contracting parties and a third party, whereby one of the contracting parties is DISCHARGED from his/her duty and the THIRD PARTY IS SUBSTITUTED in the discharged party’s place.

Answer 64

both parties have MUTUALLY AGREED TO RESCIND or not go through with the contract

Answer 65

does NOT MATERIALLY INCREASE the other party's RISK OR DUTY

Answer 66

when a party to the contract at issue owes the creditor money and the contract at issue was MADE TO SATISFY THAT DEBT; can ENFORCE the contract.

Answer 67

refrain from COMPETING with or acting ADVERSELY to the principal, unless the principal knows and approves of such activity

Answer 68

a person entrusts possession of goods to a MERCHANT who normally deals in that type of goods and obtains TITLE to those goods even though the goods were stolen

Answer 69

Both the principal and agent CONSENT to the agency

Answer 70

$500 or 20% of the purchase price, whichever is LESS

Answer 71

none, they CAN NOT ENFORCE the contract...only intended beneficiaries can.

Answer 72

generally assignable

Answer 73

1. Option contract rights ARE assignable | 2. Malpractice insurance policy rights are NOT assignable

Answer 74

DOES NOT WAIVE OR ELIMINATE the contract rights of the original party to the contract. UNLESS RELEASED, the assignor remains liable to the other contracting party. If the assignee fails to perform the obligations under the contract, the assignor is still responsible.

Answer 75

personal services

Answer 76

To determine how much Surety 1 and Surety 2 owe, you simply TAKE SURETY 3's pledged amount OUT OF THE DENOMINATOR and continue to use the surety's share as the numerator. Our original denominator was $90,000. With Surety 3 out in bankruptcy, the denominator is now $75,000, and Surety 1 owes 30000/75000 and Surety 2 owes 45000/75000. Surety 1 = 2/5 × 45,000 or $18,000 Surety 2 = 3/5 × 45,000 or $27,000

Answer 77

its right of contribution | 100%

Answer 78

$28,000 When there are co-sureties, each has a right to a proportionate contribution from the others if a co-surety pays an unfair share of the debt. In this case, Nash's liability is 2/9 of the total liability among all co-sureties ($40,000 out of a total $180,000). She therefore should not pay more than 2/9 of any total settlement. She has a right to recover 7/9 × $36,000 from the others, or $28,000. More specifically, she will get $12,000 from Owen and $16,000 from Polk.

Answer 79

the "main purpose" or "leading object" doctrine where the guarantor will BENEFIT financially or economically

Answer 80

1. PRIMARILY LIABLE on the debt | 2. a creditor may demand payment from the cosigner alone as soon as the loan becomes due

Answer 81

1. required to DISCLOSE any known MATERIAL FACTS to a surety before the surety signs a loan agreement, if such facts will substantially INCREASE the surety's RISKS. 2. When a creditor does NOT MAKE such disclosures, the creditor has committed PRESUMED FRAUD, and the surety may use this as a DEFENSE to repayment.

Answer 82

sureties have a right to be "PAID BACK" by a debtor when payment is made on the debtor's behalf

Answer 83

a right one CO-SURETY has against another

Answer 84

The principal debtor's PERFORMANCE IS TENDERED (no longer a debt to be repaid by anyone)

Answer 85

To create a security interest the creditor must give VALUE, the debtor must have RIGHTS in the collateral, and the creditor must take POSSESSION of the collateral OR obtain the agreement in a signed or authenticated WRITING by the debtor.

Answer 86

A means by which a SECURED PARTY GAINS PRIORITY TO A DEBTOR'S COLLATERAL over other third parties who also claim to have an interest in the same collateral.

Answer 87

created when the interest is taken or retained by the seller of the collateral to secure the price—UCC 9-103(a)(2). In other words, the creditor is ADVANCING the FUNDS FOR the PURCHASE OF the COLLATERAL.

Answer 88

1. Filing a finance statement - lasts for five years and can be continued with a continuation statement if filed within six months of expiration 2. Physical possession of the goods 3. PMSI in CONSUMER GOODS (e.g. computer) 4. A sale of payment intangibles 5. A sale of promissory notes

Answer 89

1. The name of the debtor 2. The address of the debtor 3. A description of the collateral

Answer 90

goods used or bought PRIMARILY for personal, family, or household purposes (e.g. computer)

Answer 91

Usually, the FIRST security interest to be PERFECTED has top PRIORITY.

Answer 92

A PMSI IN NON-INVENTORY COLLATERAL has PRIORITY if it is PERFECTED BEFORE the debtor takes POSSESSION or WITHIN 20 DAYS thereafter.

Answer 93

FREE FROM a security interest e.g. of ordinary course of business - a buyer purchases a computer from a seller who normally sells computers

Answer 94

1. inventory | 2. equipment

Answer 95

The debtor has paid 60% of the PURCHASE PRICE, so BestBuy MUST SELL the TV. * compulsory disposition of the collateral

Answer 96

1. Peacefully REPOSSESS the goods without judicial process 2. Reduce the claim to a JUDGMENT (levy/tax on the nonexempt property, property other than the collateral, of the debtor) 3. SELL the goods and apply the proceeds toward the debt (surplus must return to debtor; must NOTIFY the DEBTOR for plans to sell)

Answer 97

1. If the debtor has TWELVE OR MORE UNSECURED CREDITORS with noncontingent claims, the PETITION MUST BE SIGNED BY THREE OR MORE of these creditors whose aggregate CLAIMS ARE $15,775 or more 2. If the debtor has LESS THAN TWELVE UNSECURED CREDITORS with noncontingent claims, the PETITION REQUIRES ONLY ONE (more can sign) of these creditors with an aggregate DEBT OF $15,775 or more TO SIGN the involuntary petition.

Answer 98

1. This usually involves an INSOLVENT DEBTOR who VOLUNTARILY TRANSFERS certain assets TO A TRUSTEE or assignee. The trustee or assignee LIQUIDATES the assets and tenders a PAYMENT on a PRO RATA BASIS in satisfaction of that debt TO EACH CREDITOR. 2. ACCEPTANCE by the creditor is a complete DISCHARGE OF THE DEBT. 3. REJECTION eliminates a creditor's right to the property assigned, but creditor can then pursue OTHER REMEDIES including involuntary bankruptcy PETITION against debtor.

Answer 99

1. A contract between the debtor and his or her creditors whereby the CREDITORS AGREE TO DISCHARGE the debtor's debts UPON A PAYMENT (usually a lesser sum). 2. Creditors who DO NOT CONTRACT are NOT BOUND by the composition agreement. 3. The ADVANTAGE, however, of composition agreements is an IMMEDIATE PAYMENT and it avoids costs and delay of bankruptcy proceedings; plus, many times the payments made EXCEED THOSE a creditor would receive THROUGH BANKRUPTCY.

Answer 100

social security benefits

Answer 101

the INABILITY TO PAY DEBTS as they become due NOT proving that liabilities are greater than assets

Answer 102

1. Banks 2. Savings (buildings) and loan associations 3. Credit unions 4. Railroads 5. Insurance companies 6. Governmental units (usually); 7. Small business investment companies licensed by the Small Business Administration

Answer 103

Referred to as “straight BANKRUPTCY” or liquidation

Answer 104

Allows for the REORGANIZATION of a debtor to pay debts—a rehabilitation of a debtor.

Answer 105

Courts will sometimes order that property be placed in receivership. Such an action PLACES PROPERTY in the hands of a RECEIVER, who ensures that the property is NOT WASTED BEFORE A JUDGMENT CAN BE REACHED in a lawsuit concerning a property

Answer 106

1. based on amounts UNPAID for work done on REAL (land or building) PROPERTY 2. the property MAY BE SOLD to satisfy the debt

Answer 107

The legal process of having sums DEDUCTED directly FROM a debtor's PAYCHECK TO SATISFY A DEBT. State laws generally LIMIT THE AMOUNT that can be deducted TO AROUND 25% of a debtor's after-tax wages.

Answer 108

1. based on amounts UNPAID for work done on PERSONAL (movable, not land or building) PROPERTY 2. the property MAY BE SOLD to satisfy the debt

Answer 109

all tangible and intangible PROPERTY of the debtor HELD AT THE COMMENCEMENT of the bankruptcy proceedings and any AFTER-ACQUIRED INCOME FROM SUCH PROPERTY RECEIVED WITHIN 180 DAYS of filing e.g. municipal-bond interest and gifts or inheritance

Answer 110

1. A CONTEMPORANEOUS EXCHANGE between the debtor and a creditor FOR NEW VALUE (e.g. cash payment for boat) 2. The PAYMENT OF A DEBT incurred in the ORDINARY COURSE OF BUSINESS or financial affairs of the debtor 3. A CONSUMER debtor's PAYMENT of UP TO $6,425 4. Payments for PATERNITY, ALIMONY, MAINTENANCE, and CHILD SUPPORT.

Answer 111

trustee (a government-appointed official)

Answer 112

1. If a creditor is an INSIDER (someone who has a close relationship with the debtor; e.g. business associates), the creditor cannot receive a preferential PAYMENT WITHIN ONE YEAR of the filing of the bankruptcy petition from an insolvent debtor. 2. An ANTECEDENT DEBT is one that was INCURRED BEFORE the bankruptcy petition was filed. These are the very debts that cannot receive preferential PAYMENTS WITHIN 90 DAYS of the filing of the bankruptcy petition from the debtor.

Answer 113

1. has the POWER TO require any persons holding the debtor's property at the time the petition is filed to DELIVER CONTROL of the PROPERTY to the trustee 2. has PRIORITY OVER an UNPERFECTED SECURED PARTY as to the debtor's property 3. has the avoidance POWER TO SET ASIDE a sale or transfer of the debtor's property TO A THIRD PERSON, taking back the property as part of the debtor's estate

Answer 114

cannot avoid all statutory or common law LIENS (such as certain warehouse liens).

Answer 115

a RIGHT TO KEEP POSSESSION of property belonging to another person UNTIL a DEBT owed by that person is DISCHARGED

Answer 116

STOPPED pending a resolution through bankruptcy proceedings

Answer 117

STAY seek relief from the BANKRUPTCY COURT and not through independent legal action the collection of alimony, child support, or other matters related to domestic disputes

Answer 118

receive REPAYMENT OF ITS DEBT without having the payments set aside

Answer 119

it must WAIT in line for further payments with everyone else

Answer 120

1. administrative expenses 2. unpaid wages earned for 90 DAYS PRIOR to filing of the petition, up to $12,850 per employee 3. unpaid contributions to employee benefit plans, up to $12,850 per employee 4. taxes 5. utility bills with the general creditors

Answer 121

fully repaid

Answer 122

1. add the amounts owed to each remaining creditor 2. divide each individual amount owed to a creditor by the total amount owed to remaining creditors 3. multiply that % by the remaining estate balance example: remaining estate balance $16,000 Frank still owed $5,000 JOG still owed $3,000 Decoy still owed $12,000 Total amount owed= $20,000 Frank receives $4,000 ($5,000/$20,000=.25*$16,000) JOG receives $2,400 ($3,000/$20,000=.15*$16,000) Decoy receives $9,600 ($12,000/$20,000=.6*$16,000)

Answer 123

EIGHT years

Answer 124

1. an act such as fraud 2. intentional concealment of assets 3. refusal to explain the loss of assets 4. is a partnership or corporation 5. the debtor has received a discharge decree within EIGHT YEARS of the current filing petition

Answer 125

1. alimony and child support payments 2. federal tax liens 3. judgment liens based on intoxication torts

Answer 126

A debtor's PROPERTY IS SEIZED so that, if a creditor wins a judgment, something will be available to pay the judgment. The property can be real or personal.

Answer 127

PERFECT in the NEW JURISDICTION WITHIN FOUR MONTHS to preserve its priority to its security interest (after four months has passed, the old secured party loses priority)

Answer 128

$800 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 − $5,000 − $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 − $20,000). Of the remaining creditors, Boyd is given a higher priority since CONSUMERS' DEPOSITS 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. Order of payments made to creditors under bankruptcy: 1. secured creditors 2. administrative costs 3. ordinary course of business - gap creditors 4. consumer deposits up to $6,425

Answer 129

1. investment of money 2. in a common enterprise (all would profit or lose, depending on how the lawsuit came out) 3. with an expectation of profit 4. to be derived primarily from the efforts of others

Answer 130

1. Investment contracts 2. Convertible debentures (a holding of corporate debt) 3. Non-convertible debentures (a holding of corporate debt) 4. Shares of corporate stock 5. Limited-partnership interests 6. Fractional undivided interests in oil 7. Stocks, bonds and notes that are issued for periods over nine months 8. Warrants - gives the holder a right to purchase stock at a particular price for a particular period of time 9. Stock options

Answer 131

a right to assets | a corporation's indebtedness

Answer 132

1. General partnership interests | 2. Certificates of deposit

Answer 133

1. A stock split that issues additional shares only to persons who were ALREADY shareholders (they won't need to make an investment decision, so disclosure of information is not necessary) 2. Any security issued by a municipality (state) 3. Any security issued by a charity 4. Any security issued by a railroad company (interstate commerce commission) 5. Any security issued by a farmers' co-operative 6. Any security issued by a bank (savings and loan)

Answer 134

firms that (a) have been reporting regularly to SEC for AT LEAST A YEAR, (b) eligible to use Form S-3 or F-3, and (c) have either (i) $700 MILLION of worldwide public common equity float, or (ii) have issued $1 BILLION of registered debt in the previous three years

Answer 135

As soon as a registration statement is FILED

Answer 136

20 DAYS AFTER the company FILED a registration statement

Answer 137

a part of the registration statement that describes the issuing CORPORATION, RISKS, and type of SECURITY being sold

Answer 138

a PRELIMINARY, or "red herring," prospectus may be issued to investors during the 20-DAY WAITING PERIOD after filing

Answer 139

to enable investors to make an INFORMED DECISION as to whether to invest in a public offering

Answer 140

1. may be issued to investors during the 20-day waiting period after filing 2. heavily RESTRICTED and may contain only LIMITED information, such as the TYPE OF SECURITY and where a potential investor would acquire a now-available PROSPECTUS

Answer 141

1. a DESCRIPTION of the SECURITY 2. HOW the corporation will USE the PROCEEDS from the sale 3. a description of the registrant's BUSINESS AND MANAGEMENT 4. a FINANCIAL STATEMENT

Answer 142

DOES NOT SET A LIMIT ON the overall number of INVESTORS if: 1. Company's total offerings for a year are UNDER $1 MILLION 2. The company is NOT an INVESTMENT COMPANY

Answer 143

1. Created a new category of firms called EGCs 2. Encouraged “CROWDFUNDING” 3. Increased the REGULATION A exemption's ceiling from $5 million to $50 million 4. ALLOWED firms doing private placements to engage in GENERAL SOLICITATION and ADVERTISING in situations where they could not do so before 5. Changed the definition of a “PUBLIC COMPANY” in order to allow firms to grow bigger before being forced to go public and thereby be saddled with all the regulatory burdens that go with that status

Answer 144

most of the BURDENS of being public FOR FIVE YEARS e.g. reduced executive compensation disclosure, minimal PCAOB compliance, may file only two years worth of audited F/S with their registration statement, can obtain a confidential SEC review of its registration statement, and minimal SOX 404(b) (requirement of audit for internal controls) compliance.

Answer 145

1. Eliminating the ban so long as all PURCHASERS of the securities in an offering are “ACCREDITED INVESTORS” (millionaires, big institutional investors, etc.) under REGULATION D 2. Requiring the issuer to take “REASONABLE STEPS” to confirm the accredited investor status of all such investors

Answer 146

1. raise money by filing a stripped down offering document yet EVADING most traditional IPO REQUIREMENTS 2. “TEST THE WATERS” by approaching investors to see if they would be interested in buying its shares and having the RIGHT TO ABANDON THE OFFERING if investor interest is insufficient

Answer 147

raise up to $1 MILLION in a 12-month period from individual investors through the Internet

Answer 148

EGC | crowdfunding

Answer 149

1. A FALSE statement or OMISSION of fact appeared in a registration statement 2. The misstatement or omission was MATERIAL 3. Plaintiff BOUGHT SECURITIES that were issued under the defective registration statement 4. Plaintiff SUFFERED DAMAGES

Answer 150

1. due diligence (did not perform negligence) 2. lack of reliance 3. alternative causation 4. statute of limitations - WITHIN 1 YEAR from when s/he discovered (or should have discovered) the false statements or omissions OR WITHIN 3 YEARS after the security was offered to the public (usually the effective date)

Answer 151

act with scienter (intent) or "extreme recklessness" (which is similar to scienter)

Answer 152

1. Reasonable investigation 2. Reasonable basis 3. Good faith belief

Answer 153

A CPA must have (1) intentionally or recklessly (2) made a misstatement of MATERIAL fact or omitted a material fact (3) that was RELIED upon by the defendant (public company that was audited by the CPA).

Answer 154

interstate commerce

Answer 155

Good faith and lack of knowledge of the statement's falsity

Answer 156

plaintiffs must sue within TWO YEARS of when they discovered, or should have discovered, the fraud AND within FIVE YEARs of when the fraud occurred.

Answer 157

plaintiffs must sue within ONE YEARS of when they discovered, or should have discovered, the fraud AND within THREE YEARs of when the fraud occurred.

Answer 158

1. It applies only to false statements in “FILED DOCUMENTS”—documents filed with the SEC. 2. require plaintiffs to establish “EYEBALL RELIANCE,” that they saw, read, and believed the false statements. 3. assumes liability if filed documents contain MATERIALLY false statements 4. privity of contract is NOT an element of the right to sue

Answer 159

RESCIND the transaction | RECOVER their losses caused by their reliance on the false statements

Answer 160

federal CRIMINAL liability

Answer 161

The Department of Justice (DOJ)

Answer 162

both civil charges (by the SEC) and criminal charges (by DOJ)

Answer 163

1. A TAX-DEDUCTIBLE employer's expense 2. These amounts are paid DIRECTLY FROM THE EMPLOYER to the government (general fund used in paying unemployment benefits) 3. A business that has only a few EMPLOYEES FOR a short time (20 WEEKS OR FEWER) each year DOES NOT HAVE TO PAY FUTA TAXES.

Answer 164

self-employment

Answer 165

survivor benefits

Answer 166

5.4% The key is that the overall payments made by the employer should not exceed the overall federal unemployment tax rate of 6.2%.

Answer 167

A person who exercised DISCRETION regarding whom to pay

Answer 168

they were INVOLUNTARILY separated because of business reverses

Answer 169

$2,000 per employee, but the FIRST 30 ARE EXEMPTED

Answer 170

1. Individuals making LESS THAN $10,000 per year (and families making less than $20,000) 2. Incarcerated individuals 3. Indian tribal members

Answer 171

$4,890 Tran first pays for the surgery–$1,200 for the deductible and then the co-pay which is 20% × $3800 ($5,000 cost − $1,200 deductible) which is $760. So far, he has paid $1,960 ($1,200 + $760), which is less that the maximum. Then Tran turns to the hospital bill. His deductible has been exhausted, so he would pay, absent the ceiling, coinsurance of 20% of $40,000, or $8,000. However, this puts him well over the maximum. He would pay only $6,850 (the maximum) minus $1,960 (the amount he has already paid), which comes to $4,890. The health insurer will pay the other $35,110 ($40,000 − $4,890). And it will pay the entire cost of the home health care ($4,000) and all of the rest of Tran's essential medical care expenses for the rest of the year.

Answer 172

$2,500 Under the ACA, Tessa could DEDUCT all expenses OVER $7,500 (the 10% THRESHOLD OF AGI), which means a $2,500 deduction.

Answer 173

Payments for the diagnosis, cure, mitigation, treatment, or prevention of disease

Answer 174

$6,460 The couple's Medicare surtax should be 3.8% of the LESSER OF (a) net investment income ($200,000 in this case), or (b) the excess of AGI over the $250,000 AGI THRESHOLD ($170,000 in this case–$420,000 minus $250,000). Therefore, the correct tax is 3.8% of $170,000, which is $6,460.

Answer 175

1. SEXUAL HARASSMENT of an independent contractor 2. FUTA TAXES for an independent contractor 3. TORT DAMAGES caused by the independent contractor

Answer 176

1. same work as employees 2. regular hours 3. required to work overtime 4. paid on an hourly basis

Answer 177

1. the service CONTRACT STATES or implies that substantially all the SERVICES are to be PERFORMED BY THE WORKER PERSONALLY 2. the worker DOES NOT HAVE A SUBSTANTIAL INVESTMENT in the equipment and property used to perform the SERVICES 3. the SERVICES are performed ON A CONTINUING BASIS for the same business e.g. life insurance agents

Answer 178

1. The classification is consistent with INDUSTRY PRACTICE 2. A previous IRS RULING found these workers to be independent contractors 3. An IRS RULING in a case involving JKL Co. found similarly situated workers to be independent contractors

Answer 179

transactions by any person OTHER THAN an issuer, underwriter, or dealer

Answer 180

unnecessary

Answer 181

1. The FORM 10‐K must be audited by an independent public accountant, but the Form 10‐Q need not be audited. 2. The FORM 10‐Q is submitted to the SEC for the FIRST THREE FISCAL QUARTERS of the issuer’s fiscal year.

Answer 182

FILE its PROXY STATEMENT with the SEC A proxy statement is a document containing the INFORMATION the Securities and Exchange Commission (SEC) requires companies to PROVIDE TO SHAREHOLDERS so they can make INFORMED DECISIONS about matters that will be brought up at an annual or special stockholder MEETING.

Answer 183

ask for RESCISSION of the sale

Answer 184

Forms S‐2 or S‐3 | Form S‐1 (longer)

Answer 185

own malpractice

Answer 186

1. TORT obligations in which the member was NOT INVOLVED | 2. from contract DEBTS OF THE FIRM

Answer 187

Advantages 1. Single taxation—at the individual level 2. Limited liability Disadvantages 1. Formality—Legal documents must be filed

Answer 188

Advantages 1. Limited liability—if a corporation is INTENTIONALLY undercapitalized (that is, it does not have nearly enough capital to meet initial demands) or shareholders have heavily COMMINGLED personal funds and corporate funds, the CORPORATE VEIL is sometimes pierced and shareholders will have to pay corporate debts from their own pockets. In the situation where third parties require owners to CO-SIGN LOANS, then the owner forfeits it's limited liability. 2. Legal personality—legal entity, separate and apart from its owners. 3. Perpetual duration Disadvantages 1. Double taxation—at the corporate and individual (dividends) level 2. Formality—Legal documents must be filed

Answer 189

Advantages 1. Total control 2. Simplicity—No formal documents need be filed 3. Single taxation—at the individual level Disadvantages 1. General liability—owner is personally liable for any debts incurred by the business

Answer 190

Advantages 1. Single taxation—at the individual level 2. Simplicity—No formal documents need be filed Disadvantages 1. General liability—ALL GENERAL PARTNERS are personally LIABLE for the obligations of the business. Joint and several liability.

Answer 191

Advantages 1. Single taxation—at the individual level Disadvantages 1. Formality—Legal documents must be filed 2. Authority—A LIMITED PARTNER must FORFEIT the right to MANAGE the BUSINESS 3. General liability—must have at least ONE GENERAL PARTNER who will be generally LIABLE to creditors for the obligations of the partnership

Answer 192

Advantages 1. Single taxation—at the individual level 2. Limited liability—remain liable for the tort liabilities generated by their OWN actions and the actions of those they SUPERVISE 3. Authority—may be actively involved in management Disadvantages 1. Formality—Legal documents must be filed 2. Insurance requirement—must maintain a minimum level of liability insurance (e.g., $1 million) 3. Selectivity—Usually state statutes LIMIT LLPs to PARTICULAR PROFESSIONS, such as accountants, architects, and lawyers.

Answer 193

Advantages 1. Single taxation—at the individual level 2. Limited liability Disadvantages 1. Selectivity—Only ABOUT 25 STATES authorize this formation 2. Authority—Limited partners generally have LITTLE SAY in how the business is run 3. Formality—Legal documents must be filed

Answer 194

Advantages 1. Limited liability 2. Single taxation—at the individual level Disadvantages 1. Formality—Legal documents must be filed 2. Individual taxation—Corporate profits are considered as if they were distributed to shareholders as individual income 3. Subchapter S requirements—It is a DOMESTIC corporation; All shareholders MUST CONSENT to the S-Corporation ELECTION; The firm can have NO MORE THAN 100 SHAREHOLDERS, although all members of a family can be treated as a SINGLE shareholder; All SHAREHOLDERS MUST BE individuals, decedent's estates, bankruptcy estates or trusts (including charitable organizations and qualified plan); Cannot have NONRESIDENT aliens as shareholders; and The corporation has only ONE CLASS OF STOCK

Answer 195

Shareholders can CONTRIBUTE PROPERTY into a corporation WITHOUT BEING TAXED.

Answer 196

1. the NAME of the CORPORATION 2. the NUMBER OF SHARES it is AUTHORIZED to issue 3. the street ADDRESS of its registered office and the NAME of its AGENT at that address 4. the NAME and ADDRESS of each INCORPORATOR

Answer 197

It is designed to forestall and resolve DISPUTES among the owners.

Answer 198

a corporation has gone BEYOND THE POWERS GRANTED in its charter (articles of incorporation) --> may cause a charter to be revoked

Answer 199

1. Sole Proprietorship 2. C Corporation 3. LLC

Answer 200

1. COMMINGLING of funds and other assets of the corporation with those of individual shareholders 2. DIVERSION of the corporation's funds or assets for the PERSONAL USE of shareholders 3. FAILURE to maintain the necessary corporate FORMALITIES 4. FAILURE to adequately CAPITALIZE the corporation for the reasonably foreseeable risks of the enterprise 5. Use of the corporation as a mere shell or CONDUIT (channel) to operate a SINGLE VENTURE or some particular aspect of the business of an INDIVIDUAL shareholder 6. Absence of SEPARATELY HELD CORPORATE ASSETS 7. Formation and use of the corporation to ASSUME (take) the existing liabilities of another person or entity

Answer 201

``` assets additional ownership (e.g. stock split/dividend) ```

Answer 202

1. does NOT guarantee payment 2. if required dividends are NOT PAID in any given year, they MUST BE "MADE UP" in the current year before any common shareholders receive a dividend

Answer 203

1. gives the PREFERENCE over common shareholders | 2. shareholders generally have NO VOTING RIGHTS

Answer 204

shareholders have VOTING RIGHTS

Answer 205

can be converted into common stock

Answer 206

1. Shareholder paid LESS THAN par value in an ORIGINAL ISSUE (not treasury stock, which has been REsold) 2. Shareholder IS LIABLE to the corporation FOR THE DIFFERENCE between the price actually paid and the par value of the shares purchased

Answer 207

No, if following the traditional rule (assume this). Yes, if following the modern trend. The TRADITIONAL RULE has been that shares could NOT properly be issued in exchange for the promise to perform future services. However, the strong MODERN TREND does ALLOW shares to be properly issued for such promises.

Answer 208

Distributions to owners

Answer 209

1. Investments by owners 2. Issuance of stock 3. Acquisition of assets in a cash transaction

Answer 210

In a GENERAL partnership, profits are shared EQUALLY among partners in the ABSENCE of an agreement. e.g. agreement states profits will be shared based on contribution, then the losses will be shared the same way if not specified. In a LIMITED partnership, profits are DIVIDED according to percentage of CONTRIBUTION in the ABSENCE of an agreement.

Answer 211

1. Death of a member, LLC's dissolution, giving notice, and expulsion pursuant to the operating agreement causes DISSOCIATION 2. In the absence of a provision stating majority agreement authorizes dissolution in the operating agreement, the RULLCA requires CONSENT of ALL members for DISSOLUTION 3. Provides for DISSOLUTION via court order if a member SUES and shows that those in CONTROL are behaving ILLEGALLY, fraudulently, or oppressively. 4. A dissolving LLC's business must GATHER together its assets and PAY its obligations to creditors.

Answer 212

1. amendments to the articles of incorporation 2. dissolution 3. sale of all or substantially all of the corporation's assets 4. mergers & consolidations

Answer 213

1. Fraudulent approval for articles of incorporation - action taken by the ATTORNEY GENERAL 2. Failure to pay franchise taxes, failure to file annual reports, and failure to properly establish and maintain a registered agent - action taken by the SECRETARY OF STATE 3. Corporation admits in writing that the claim is due and it is insolvent or claim that has been reduced to judgment, is unsatisfied, and the corporation is proved to be insolvent - action taken by CREDITORS

Answer 214

1. A FORMAL PLAN of merger 2. An affirmative VOTE by the holders of a MAJORITY of each corporation's voting shares 3. APPROVAL by the BOARD OF DIRECTORS of each corporation

Answer 215

1. APPROVE dissolution 2. VOTE FOR the election and removal of the BOARD OF DIRECTORS 3. a REASONABLE INSPECTION of corporate records (full inspection may be limited if a shareholder owns a small number of shares or has held his interest for only a short period of time)

Answer 216

manage the day-to-day operations (e.g. borrowing)

Answer 217

1. owe the company a FIDUCIARY duty - the duty of highest loyalty 2. right to elect OFFICERS 3. right to have the corporation issue a new CLASS OF STOCK 4. right to DECLARE dividends 5. right to repeal the BYLAWS 6. right to fix the COMPENSATION of directors

Answer 218

the distribution of profits

Answer 219

The right to a share of profits

Answer 220

if the corporation issues additional shares, existing shareholders may, if they choose, invest additional money to buy shares to maintain their ORIGINAL LEVELS OF CONTROL.

Answer 221

To RECOVER DAMAGES from corporate management FOR AN ULTRA VIRES management ACT. The shareholder is not suing for an individual injury done to him/her but, instead, for an INJURY DONE TO THE CORPORATION.

Answer 222

notice | fairness

Answer 223

1. Duty of LOYALTY, which includes: Accounting for any BENEFIT derived; Avoiding CONFLICTS OF INTEREST; and Refraining from COMPETING with the partnership business. 2. Duty of CARE, which includes refraining from engaging in grossly NEGLIGENT or RECKLESS conduct, INTENTIONAL MISCONDUCT, or a KNOWING VIOLATION of the law.

Answer 224

acted in GOOD-FAITH and followed the BUSINESS-JUDGMENT RULE.

Answer 225

courts refuse to second guess the decisions of corporate directors (and officers) in most situations, because the JUDGES realize that they themselves ARE NOT BUSINESS EXPERTS.

Answer 226

1. It is APPROVED BY SHAREHOLDERS after full disclosure 2. The director must DISCLOSE the interest TO the independent members of the BOARD and refrain from voting 3. It is determined to be "FAIR" to the corporation, even if knowing approval of directors or shareholders was not obtained.

Answer 227

RELY on information provided by the appropriate corporate OFFICER

Answer 228

Even if the contract states "FOB Seller's loading dock," the SELLER will retain the RISK OF LOSS if they BREACH the contract by shipping NONCONFORMING goods. However, TITLE passed to the BUYER upon delivery to the common carrier.

Answer 229

REJECTS goods, even nonconforming, under a contract

Answer 230

Meets the Statute of Frauds writing requirement It was signed by buyer, stated quantity, and indicated that a contract was made

Answer 231

the oral contract is enforceable up to the amount shipped and ACCEPTED (does not have to be in writing to be enforceable since it was accepted by the buyer)

Answer 232

One party promises to REIMBURSE debtor for payment of debt or loss if it arises.

Answer 233

Relationship whereby one person agrees to ANSWER FOR THE DEBT or default OF ANOTHER. three parties --> creditor, surety, debtor

Answer 234

Promises to PAY DEBT ON DEFAULT of principal debtor

Answer 235

Receives INTENDED BENEFITS of a contract

Answer 236

Jointly and severally LIABLE TO CREDITOR

Answer 237

Upon payment, surety obtains SAME RIGHTS against debtor that CREDITOR had

Answer 238

Right of surety to REQUIRE the DEBTOR TO PAY BEFORE surety pays

Answer 239

1. EXEMPTS registration of an issuance of securities up to $1,000,000 sold in a 12-MONTH period to ANY NUMBER of investors 2. general solicitation IS ALLOWED only to ACCREDITED investors and states where the stock was sold that PERMIT it 3. SEC must be NOTIFIED within 15 DAYS of the first sale of the securities

Answer 240

1. EXEMPTS registration of an issuance of securities up to $5,000,000 sold in a 12-MONTH period to 35 NONACCREDITED investors and an UNLIMITED number of ACCREDITED investors 2. SEC must be NOTIFIED within 15 DAYS of the first sale of the securities 3. If nonaccredited investor purchasers are involved, then they must be furnished with at least an AUDITED BALANCE SHEET

Answer 241

1. EXEMPTS registration of an issuance of securities with an UNLIMITED DOLLAR AMOUNT sold through PRIVATE PLACEMENT to 35 NONACCREDITED investors and an UNLIMITED number of ACCREDITED investors 2. SEC must be NOTIFIED within 15 DAYS of the first sale of the securities

Answer 242

are sophisticated investors with KNOWLEDGE and EXPERIENCE in financial matters

Answer 243

1. Inventory and accounts/notes receivables 2. Depreciable property and realty used in a trade/business that have been owned for a YEAR OR LESS 3. Generally, copyrights and musical, artistic, and literary works that are HELD by the PERSON WHO CREATED the work

Answer 244

1. Property held for investment use and personal use 2. Goodwill of a corporation (self-created) 3. Patents

Answer 245

Depreciable property and realty used in a trade/business that have been owned for MORE THAN ONE YEAR e.g. office equipment, machinery, furniture, building, land, delivery trucks, amortizable intangible assets, ACQUIRED goodwill

Answer 246

Cost or other acquisition basis of the property (including any liabilities or expenses connected with the acquisition) + Capital improvements (not repairs) - Depreciation, amortization, and depletion.

Answer 247

1. FAIR MARKET VALUE BASIS to the beneficiary | 2. LONG TERM holding period

Answer 248

Amount Realized - Adjusted Basis = Recognized Gain/Loss

Answer 249

1. GAIN basis is the DONOR'S ADJUSTED BASIS 2. LOSS basis is the LOWER OF the FAIR MARKET VALUE OR the adjusted BASIS 3. asset is later sold for an AMOUNT IN BETWEEN the gain and loss basis, NO GAIN OR LOSS IS RECOGNIZED

Answer 250

not deductible | deductible

Answer 251

shares held by a shareholder will be doubled and the stock price will be cut in half (e.g. basis prior to stock split is $100 per share for 100 shares. basis after stock split is $50 per share for 200 shares.)

Answer 252

The basis includes all of the costs incurred to prepare the asset TO BE PLACED IN SERVICE. Purchase price + Delivery charges + Installation fees + Sales tax

Answer 253

1. GAINS from the sale are treated as regular long-term CAPITAL gains, but LOSSES are treated as ORDINARY losses (MAXIMUM characterized as ordinary is $100,000 for married filing jointly and $50,000 for others) 2. Stock of a DOMESTIC SMALL BUSINESS CORPORATION meaning that the capital receipts of the corporation DO NOT EXCEED $1,000,000 at the time the stock is issued. 3. At least 50% of the corporation's GROSS RECEIPTS have to be generated from sources OTHER THAN INVESTMENT INCOME during the previous FIVE tax years. 4. The seller of the stock had to be the ORIGINAL HOLDER of the stock 5. If a loss creates a net operating loss, that NOL can be CARRIED FORWARD to future years.

Answer 254

$4,000 An INDIVIDUAL can deduct only $3,000 of net capital losses each year. Excess capital losses are CARRIED OVER indefinitely. In Year 1, $3,000 of the losses are deducted and the other $2,000 is carried forward. In Year 2, the $2,000 carryforward capital loss offsets the $1,000 capital gain to produce a $1,000 net capital loss. There is no carryforward loss to Year 3 so the entire $4,000 capital gain is recognized.

Answer 255

trade date

Answer 256

capital gains

Answer 257

netted net short-term capital gain or loss netted net long-term capital gain or loss The net short-term capital gain or loss and the net long-term capital gain or loss are NETTED with the resulting capital gain net income, taxable income to the corporation.

Answer 258

three years | five years

Answer 259

reduce the taxable income of the CORPORATION

Answer 260

$1,100 May 12 Sale Amount realized (500 × $23) $11,500 Adjusted basis (500 × $25) (12,500) Realized loss $(1,000) Since 250 shares of the Jackey stock was repurchased within 60 DAYS of the sale date (30 days before/30 days after), 50% of the realized loss is NOT recognized. So the recognized loss is $500. The basis in the 250 shares purchased on May 28 is $6,000 (cost of $5,500 + the DEFERRED LOSS of $500). The cost per share is $24 ($6,000/250 shares). October 15 Sale Amount realized (100 × $18) $ 1,800 Adjusted basis (100 × $24) (2,400) Realized loss and recognized loss $(600) The total capital loss is $1,100 ($500 + $600).

Answer 261

1. all DEPRECIABLE PERSONAL (movable, not land or building) property (for example, equipment and machinery) 2. RECAPTURE is owed on gains = gains are treated as ORDINARY INCOME to the EXTENT OF DEPRECIATION or amortization taken on the property 3. Section 1245 recapture equals the lesser of realized gain or accumulated depreciation taken. e.g. $100,000 cost, $47,525 depreciation, $102,000 sold Adjusted Basis is $52,475 ($100,000 - $47,525) Amount realized $102,000 - Adjusted Basis $52,475 = Realized Gain $49,525 Recapture is owed for Section 1245 property $47,525 depreciation is treated as ORDINARY INCOME and $2,000 is treated as a Section 1231 GAIN

Answer 262

25% | the straight-line depreciation

Answer 263

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 Section 1231 gain is recaptured as ORDINARY INCOME to the extent of the deferred losses.

Answer 264

The property is tangible, and the tangible thing ITSELF has value. e.g. oil painting

Answer 265

If you place property in service between January and September (the first nine months), you must USE the half-year convention. This convention assumes you placed property IN SERVICE in the MIDDLE of the year even if it was placed in service the beginning of the year. It also assumes that when you DISPOSE of the property, you disposed of it in the MIDDLE of the year even if you disposed of it on January 1. Consequently, in the year the property is placed IN SERVICE you may only deduct ONE-HALF of the annual depreciation and in the year the property is DISPOSED of you may only deduct ONE-HALF of the annual depreciation. Depreciation: $3,000 cost * 19.20% MACRS rate = $576/2 = $288 Ownership: 6 months deemed OWNED in the year Accumulated Depreciation: 1st year rate*Asset Cost 2nd year rate*Asset Cost (Sold) 3rd year rate*Asset Cost*50% Total = Accumulated Depreciation

Answer 266

Most equipment, machinery, office furniture, and fixtures (also the default category for unspecified-class property) e.g. computer desks, office furniture

Answer 267

Automobiles, light trucks, computers, certain assets used in high-technology manufacturing, office equipment, rental appliances, furniture, carpets, etc., but EXCLUDING office furniture and fixtures (seven-year property) e.g. computers, delivery trucks

Answer 268

Nonresidential real property e.g. building

Answer 269

$2,250 Under MACRS, the office building is considered NON-RESIDENTIAL REAL PROPERTY. Land cannot be depreciated. Its class life is 39 YEARS. MACRS requires that the STRAIGHT-LINE METHOD be used to compute the depreciation of 39-year class life property. Therefore, the office building would be depreciated at a rate of $6,000 PER YEAR ([$264,000 building cost, less $30,000 cost of land]/39 years). However, the MID-MONTH CONVENTION applies to 39-year class life property. This convention requires that, regardless of when realty is placed into service, it is CONSIDERED TO BE PLACED INTO SERVICE AT MID-MONTH. Therefore, for August 2017 (the first month of service), Graham could DEDUCT $250 (= $6,000/12 months × one-half of a month). For the period of September 2017 to December 2017 (the remainder of the tax year), Graham could deduct $2,000 (= $6,000 x 4/12 months). Hence, Graham's MACRS deduction for the office building in 2017 would be $2,250, the sum of the two periods.

Answer 270

1. straight-line method 2. 200% declining-balance method switching to straight line 3. 150% declining-balance method switching to straight line

Answer 271

Residential real property

Answer 272

Over 180 months e.g. customer lists, trade names, and goodwill

Answer 273

Amount Realized: Equipment received at FV + Cash + Debt relief Adjusted Basis: Cost - Depreciation Realized Gain: Amount realized - Adjusted Basis Boot = Cash and Debt relief Recognized Gain is the LOWER of the boot received or realized gain.

Answer 274

NO GAIN OR LOSS is generally recognized | exception is boot

Answer 275

Qualify --> Investment property and realty Do NOT qualify --> Exchanges involving property held primarily for sale; stocks, bonds, notes and other securities; inventory; partnership interests; certificates trusts or beneficial interest; and evidences of indebtedness. "Like-kind" means the same type of investment (e.g., realty for realty or personalty for personalty, assuming the personal property falls within the same "asset class" for tax depreciation purposes)

Answer 276

$75,000 A fire qualifies as an INVOLUNTARY conversion, and realized gain can be DEFERRED since the old warehouse is replaced with a new warehouse. Amount realized from conversion $195,000 Adjusted basis of old property (75,000) Realized gain $120,000 Amount realized from conversion $195,000 Cost of replacement property (167,000) Recognized gain $ 28,000 The recognized gain is $28,000, the LOWER of the realized gain or the amount realized that was not reinvested in the new warehouse. The DEFERRED GAIN is $92,000 ($120,000 – $28,000). The ADJUSTED BASIS of the NEW PROPERTY is its cost reduced by any deferred gain: $167,000 - $92,000 = $75,000.

Answer 277

$250,000 $500,000 --> both spouses must meet the use test, but only one must meet the ownership test two five

Answer 278

cash collected × (realized gain or gross profit/contract price)

Answer 279

NOT recognized Related parties include taxpayer's brothers and sister (whole and half blood), spouse, ancestors (grandfather) and lineal descendants (granddaughter)

Answer 280

only TO THE EXTENT that the GAIN EXCEEDS the amount of the DISALLOWED LOSS.

Answer 281

30 days Gains may be recognized

Answer 282

IRC-1212-b

Answer 283

the straight-line method under the alternative depreciation system (ADS) e.g. 40% business use, $1,500 basis*10% ADS rate*40% business use

Answer 284

1. considers the cost of BUSINESS EQUIPMENT (excluding realty, land or building) acquired in the LAST QUARTER of the year (October, November, and December). 2. If the TOTAL COST of business equipment acquired in the LAST QUARTER of the year EXCEEDS 40% of the TOTAL COST of EQUIPMENT acquired for the ENTIRE YEAR, the mid-quarter convention MUST BE USED for all property placed in service in that tax year. 3. If the 40% test is NOT met, the HALF-YEAR convention must be used. e.g. Total purchase amount in the fourth quarter/Total purchase amount for personalty for the year

Answer 285

Section 1231 | LESSER of realized gain or accumulated depreciation taken

Answer 286

``` $510,000 7-year property 5-year property 50% NEW property ``` property NOT 100% used for business is NOT eligible

Answer 287

``` identifies a type of asset gain ordinary income capital gain other in between ```

Answer 288

Section 1245 | Section 1250

Answer 289

capital | ordinary

Answer 290

movable land immovable attached to the land (building)

Answer 291

1. all REAL property (Land and Building) 2. RECAPTURE is owed on gains = gains are treated as ORDINARY INCOME in EXCESS OF what straight-line depreciation would have been. 3. RARELY applies since MACRS rules require nonresidential and residential REAL property to be depreciated using the straight-line method.

Answer 292

1. applies to nonresidential and residential REAL property (buildings) 2. only the straight-line method may be used 3. regardless of when realty is placed INTO SERVICE, it is considered to be placed into service at MID-MONTH. e.g. August 2017 (first month of service), Graham could DEDUCT $250 (= $6,000 annual depreciation/12 months × ONE-HALF of a month). For the period of September 2017 to December 2017 (the remainder of the tax year), Graham could deduct $2,000 (= $6,000 annual depreciation x 4/12 months)

Answer 293

Respondeat superior

Answer 294

Corporation issues its EXISTING shareholders more stock. In essence, the corporation is merely diluting the proportional ownership interest of existing shares. This has NO EFFECT on the corporation's earnings and profits for federal income tax purposes.

Answer 295

general | limited

Answer 296

personally liable not yet in existence novation not hold the promoter liable

Answer 297

the same way as profits

Answer 298

ALL the general and limited partners

Answer 299

an independent PRIVATE purpose

Answer 300

his/her economic interest

Answer 301

1. the unifying of two or more corporations into ONE NEW corporation, extinguishing both existing corporations 2. recognized by the Internal Revenue Code as a type of TAX-FREE reorganization 3. creditors will have their claims PROTECTED 4. the shareholders MUST APPROVE the plan of consolidation

Answer 302

5 days' notice the articles of incorporation do NOT affect rights given by law

Answer 303

1. Be sufficiently DEFINITE and CERTAIN 2. Manifest an INTENT to enter into a contract 3. Be communicated to the offeree and the communication must be made or authorized by the offeror

Answer 304

NO objective meeting of the minds

Answer 305

their capital contribution

Answer 306

preliminary notice of deficiency | 30

Answer 307

statutory notice of deficiency | 90

Answer 308

installment agreement | $50,000

Answer 309

GREATER OF $1,000 or 50% of the income derived by the preparer for preparing the return.

Answer 310

GREATER OF $5,000 or 75% of the income earned by the tax preparer for preparing the return or claim.

Answer 311

substantial authority disclosed reasonable basis

Answer 312

1. No "substantial authority" (40% chance of approval or being sustained) for an undisclosed position 2. No "reasonable basis" (20% chance of approval or being sustained) for a disclosed position 3. Not "more likely than not" (50% chance of approval or being sustained) for tax shelter position

Answer 313

does NOT have knowledge | NOTIFY the debtor of the assignment

Answer 314

1. Services already performed 2. Services promised to be performed at a later date 3. Negotiable promissory note to pay cash

Answer 315

set forth the authority of corporate officers

Answer 316

More than 100 audits

Answer 317

are EXEMPT from involuntary bankruptcy proceedings even if they are insolvent

Answer 318

The debtor may regain possession of property in the possession of an interim trustee if the debtor files a BOND.

Answer 319

1. Client consents 2. GAAP calls for disclosure 3. Enforceable summons and subpoenas 4. Ethical examination 5. Peer review 6. State CPA society quality control panels 7. Disclosure to the CPA's attorney for help in a lawsuit 8. To others in firm on "need to know" basis (partners)

Topics You Should Know (Modules 1-6) Flashcards

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