2013.aicpa.newly.released.questions reg

5/28/2018 2013.AICPA.newly.released.questions REG

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2013 AICPA Newly Released Questions Regulation

1 2013 DeVry/Becker Educational Development Corp. All rights reserved.

Following are multiple choice questions recently released by the AICPA. These

questions were released by the AICPA with letter answers only. Our editorial board is

currently working on providing detailed explanations for these questions, so please

check back to the Becker Knowledgebase soon for the updated file.

Please note that the AICPA generally releases questions that it does NOT intend to use

again. These questions and content may or may not be representative of questions you

may see on any upcoming exams.

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AICPA QUESTIONS RATED MODERATE DIFFICULTY

1. CPA-

To which of the following transactions does the common law Statute of Frauds notapply?

a. Contracts for the sale of real estate.

b. Agreements made in consideration of marriage.c. Promises to pay the debt of another.

d. Contracts that can be performed within one year.

Explanation

Choice "d" is correct.


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2. CPA-

Gulde's tax basis in Chyme Partnership was $26,000 at the time Gulde received a liquidating distributionof $12,000 cash and land with an adjusted basis to Chyme of $10,000 and a fair market value of $30,000.Chyme did not have unrealized receivables, appreciated inventory, or properties that had beencontributed by its partners. What was the amount of Gulde's basis in the land?

a. $0b. $10,000

c. $14,000

d. $30,000

Explanation

Choice "c" is correct.


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3. CPA-

Under the Sales Article of the UCC, which of the following circumstances best describes how the impliedwarranty of fitness for a particular purpose arises in a sale of goods transaction?

a. The buyer is purchasing the goods for a particular purpose and is relying on the seller's skill orjudgment to select suitable goods.

b. The buyer is purchasing the goods for a particular purpose and the seller is a merchant in suchgoods.

c. The seller knows the particular purpose for which the buyer will use the goods and knows the buyer isrelying on the seller's skill or judgment to select suitable goods.

d. The seller knows the particular purpose for which the buyer will use the goods and the seller is amerchant in such goods.

Explanation



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4. CPA-

Randolph is a single individual who always claims the standard deduction. Randolph received thefollowing in the current year:

Wages $22,000

Unemployment compensation 6,000

Pension distribution (100% taxable) 4,000

A state tax refund from the previous year 425

What is Randolphs gross income?

a. $22,000

b. $28,425

c. $32,000

d. $32,425

Explanation



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5. CPA-

Which of the following conditions must be met to form an agency?

a. An agency agreement must be in writing.

b. An agency agreement must be signed by both parties.

c. The principal must furnish legally adequate consideration for the agent's services.

d. The principal must possess contractual capacity.

Explanation



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6. CPA-

Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also received, as a fringebenefit, group term-life insurance at twice Johnson's salary. The annual IRS-established uniform cost ofinsurance is $2.76 per $1,000. What amount must Johnson include in gross income?

a. $100,000

b. $100,276c. $100,414

d. $100,552

Explanation



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7. CPA-

In return for a 20% partnership interest, Skinner contributed $5,000 cash and land with a $12,000 basisand a $20,000 fair market value to the partnership. The land was subject to a $10,000 mortgage that thepartnership assumed. In addition, the partnership had $20,000 in recourse liabilities that would be sharedby partners according to their partnership interests. What amount represents Skinner's basis in thepartnership interest?

a. $27,000

b. $21,000

c. $19,000

d. $13,000

Explanation



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8. CPA-

Azure, a C corporation, reports the following:

Pretax book income of $543,000.

Depreciation on the tax return is $20,000 greater than depreciation on the financial statements.

Rent income reportable on the tax return is $36,000 greater than rent income per the financial

statements. Fines for pollution appear as a $10,000 expense in the financial statements.

Interest earned on municipal bonds is $25,000.

What is Azure's taxable income?

a. $528,000

b. $543,000

c. $544,000

d. $559,000

Explanation



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9. CPA-

Which of the following cannot be amortized for tax purposes?

a. Incorporation costs.

b. Temporary directors' fees.

c. Stock issuance costs.

d. Organizational meeting costs.

Explanation



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10. CPA-

PDK, LLC had three members with equal ownership percentages. PDK elected to be treated as apartnership. For the tax year ending December 31, year 1, PDK had the following income and expenseitems:

Revenues $120,000

Interest income 6,000Gain on sale of securities 8,000

Salaries 36,000

Guaranteed payments 10,000

Rent expense 21,000

Depreciation expense 18,000

Charitable contributions 3,000

What would PDK report as nonseparately stated income for year 1 tax purposes?

a. $30,000

b. $35,000

c. $43,000d. $51,000

Explanation

Choice "b" is correct.


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11. CPA-

For an individual business owner, which of the following would typically be classified as a capital asset forfederal income tax purposes?

a. Accounts receivable.

b. Marketable securities.

c. Machinery and equipment used in a business.d. Inventory.

Explanation



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12. CPA-

A CPA prepares a client's tax return containing business travel expenses without inquiring about theexistence of documentation for the expenses. Which statement best describes the consequence of theCPA's lack of inquiry?

a. The CPA may be assessed a tax return preparer penalty.

b. The CPA may be charged with preparing a fraudulent return.c. The client will not owe an understatement penalty if the return is audited and the expenses

disallowed.

d. The client will notbe subject to a fraud penalty.

Explanation

Choice "a" is correct.


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13. CPA-

What is the due date of a federal estate tax return (Form 706), for a taxpayer who died on May 15, year 2,assuming that a request for an extension of time is notfiled?

a. September 15, year 2.

b. December 31, year 2.

c. January 31, year 3.d. February 15, year 3.

Explanation



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14. CPA-

Under Treasury Circular 230, in which of the following situations is a CPA prohibited from giving writtenadvice concerning one or more federal tax issues?

a. The CPA takes into account the possibility that a tax return will notbe audited.

b. The CPA reasonably relies upon representations of the client.

c. The CPA considers all relevant facts that are known.d. The CPA takes into consideration assumptions about future events related to the relevant facts.

Explanation



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15. CPA-

A CPA prepares income tax returns for a client. After the client signs and mails the returns, the CPAdiscovers an error. According to Treasury Circular 230, the CPA must:

a. Document the error in the workpapers.

b. Prepare an amended return within 30 days of the discovery of the error.

c. Promptly advise the client of the error.d. Promptly resign from the engagement and cooperate with the successor accountant.

Explanation



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16. CPA-

A corporate taxpayer plans to switch from the FIFO method to the LIFO method of valuing inventory.Which of the following statements is accurate regarding the use of the LIFO method?

a. In periods of rising prices, the LIFO method results in a lower cost of sales and higher taxableincome, when compared to the FIFO method.

b. The taxpayer is required to receive permission each year from the Internal Revenue Service tocontinue the use of the LIFO method.

c. The LIFO method can be used for tax purposes even if the FIFO method is used for financialstatement purposes.

d. Under the LIFO method, the inventory on hand at the end of the year is treated as being composed ofthe earliest acquired goods.

Explanation



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17. CPA-

Which of the following statements regarding an individual's suspended passive activity losses is correct?

a. $3,000 of suspended losses can be utilized each year against portfolio income.

b. Suspended losses can be carried forward, but notback, until utilized.

c. Suspended losses must be carried back three years and forward seven years.

d. A maximum of 50% of the suspended losses can be used each year when an election is made toforgo the carry-back period.

Explanation



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18. CPA-

Simmons gives her child a gift of publicly-traded stock with a basis of $40,000 and a fair market value of$30,000. No gift tax is paid. The child subsequently sells the stock for $36,000. What is the childsrecognized gain or loss, if any?

a. $4,000 loss.

b. No gain or loss.c. $6,000 gain.

d. $36,000 gain.

Explanation



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19. CPA-

Under the Negotiable Instruments Article of the UCC, what kind of indorsement is made by the use of thewords Lee Louis?

a. Blank, nonrestrictive, and unqualified.

b. Blank, nonrestrictive, and qualified.

c. Special, nonrestrictive, and unqualified.d. Special, nonrestrictive, and qualified.

Explanation



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20. CPA-

An individual entered into several exchanges during the current tax year. Which of the followingexchanges is classified as like-kind?

a. Partnership interest for partnership interest.

b. Common stock for common stock.

c. Apartment building for unimproved land.d. Manufacturing equipment for factory building.

Explanation



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AICPA QUESTIONS RATED HARD DIFFICULTY

21. CPA-

When the AQR partnership was formed, partner Acre contributed land with a fair market value of$100,000 and a tax basis of $60,000 in exchange for a one-third interest in the partnership. The AQRpartnership agreement specifies that each partner will share equally in the partnership's profits and

losses. During its first year of operation, AQR sold the land to an unrelated third party for $160,000. Whatis the proper tax treatment of the sale?

a. Each partner reports a capital gain of $33,333.

b. The entire gain of $100,000 must be specifically allocated to Acre.

c. The first $40,000 of gain is allocated to Acre, and the remaining gain of $60,000 is shared equally bythe other two partners.

d. The first $40,000 of gain is allocated to Acre, and the remaining gain of $60,000 is shared equally byall the partners in the partnership.

Explanation



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22. CPA-

Summer, a single individual, had a net operating loss of $20,000 three years ago. A Code Sec. 1244stock loss made up three-fourths of that loss. Summer had no taxable income from that year until thecurrent year. In the current year, Summer has gross income of $80,000 and sustains another loss of$50,000 on Code Sec. 1244 stock. Assuming that Summer can carry the entire $20,000 net operatingloss to the current year, what is the amount and character of the Code Sec. 1244 loss that Summer can

deduct for the current year?

a. $35,000 ordinary loss.

b. $35,000 capital loss.

c. $50,000 ordinary loss.

d. $50,000 capital loss.

Explanation



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23. CPA-

Which of the following types of conduct renders a contract void?

a. Mutual mistake as to facts forming the basis of the contract.

b. Undue influence by a dominant party in a confidential relationship.

c. Duress through physical compulsion.

d. Duress through improper threats.

Explanation



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24. CPA-

On day 1, Jackson, a merchant, mailed Sands a signed letter that contained an offer to sell Sands 500electric fans at $10 per fan. The letter was received by Sands on day 3. The letter contained a promisenot to revoke the offer but no expiration date. On day 4, Jackson mailed Sands a revocation of the offer tosell the fans. Sands received the revocation on day 6. On day 7, Sands mailed Jackson an acceptance ofthe offer. Jackson received the acceptance on day 9. Under the Sales Article of the UCC, was a contract

formed?

a. No contract was formed because the offer failed to state an expiration date.

b. No contract was formed because Sands received the revocation of the offer before Sands acceptedthe offer.

c. A contract was formed on the day Jackson received Sands' acceptance.

d. A contract was formed on the day Sands mailed the acceptance to Jackson.

Explanation



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25. CPA-

The sole shareholder of an S corporation contributed equipment with a fair market value of $20,000 and abasis of $6,000 subject to $12,000 liability. What amount is the gain, if any, that the shareholder mustrecognize?

a. $0

b. $6,000c. $8,000

d. $12,000

Explanation



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26. CPA-

In year 6, an IRS agent completed an examination of a corporation's year 5 tax return and proposed anadjustment that will result in an increase in taxable income for each of years 1 through year 5. All returnswere filed on the original due date. The proposed adjustment relates to the disallowance of corporate jetusage for personal reasons. The agent does not find the error to be fraudulent or substantial in nature.

Which of the following statements regarding this adjustment is correct?a. The adjustment is improper because an agent may only propose adjustments to the year under

examination.

b. The adjustment is proper because there is no statute of limitations for improperly claiming personalexpenses as business expenses.

c. The adjustment is proper because it relates to a change in accounting method, which can be maderetroactively irrespective of the statute of limitations.

d. The adjustment is improper because the statute of limitations has expired for several years of theadjustment.

Explanation



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27. CPA-

Carson owned 40% of the outstanding stock of a C corporation. During a tax year, the corporationreported $400,000 in taxable income and distributed a total of $70,000 in cash dividends to itsshareholders. Carson accurately reported $28,000 in gross income on Carsons individual tax return. Ifthe corporation had been an S corporation and the distributions to the owners had been proportionate,how much income would Carson have reported on Carsons individual return?

a. $28,000

b. $132,000

c. $160,000

d. $188,000

Explanation



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28. CPA-

Which of the following may not be deducted in the computation of alternative minimum taxable income ofan individual?

a. Traditional IRA account contribution.

b. One-half of the self-employment tax deduction.

c. Personal exemptions.d. Charitable contributions.

Explanation



30/41



29. CPA-

The sale of which of the following types of business property should be reported as Section 1231(Property Used in the Trade or Business and Involuntary Conversions) property?

a. Inventory held for resale.

b. Machinery held for six months.

c. Cattle held for 6 months.d. Land held for 18 months.

Explanation



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30. CPA-

Smith has an adjusted gross income (AGI) of $120,000 without taking into consideration $40,000 oflosses from rental real estate activities. Smith actively participates in the rental real estate activities. Whatamount of the rental losses may Smith deduct in determining taxable income?

a. $0

b. $15,000c. $20,000

d. $40,000

Explanation



32/41



31. CPA-

Pat created a trust, transferred property to this trust, and retained certain interests. For income taxpurposes, Pat was treated as the owner of the trust. Pat has created which of the following types oftrusts?

a. Simple.

b. Grantor.c. Complex.

d. Pre-need funeral.

Explanation



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32. CPA-

Individual Lark's year 2 brokerage account statement listed the following capital gains and losses from thesale of stock investments:

Short-term capital gain $6,000

Long-term capital gain 14,000Short-term capital loss 4,000

Long-term capital loss 8,000

In addition, two stock investments became worthless in year 2. Public Company X stock was purchasedin December, year 1, for $5,000, and formal notification was received by Lark on July, year 2, that it wasworthless. Private company Section 1244 stock was issued to Lark for $10,000 in January, year 1, andwas determined to be worthless in December, year 2. What is Lark's year 2 net capital gain or loss beforeany capital loss limitation?

a. $2,000 net capital loss.

b. $3,000 net capital gain.

c. $7,000 net capital loss.d. $8,000 net capital gain.

Explanation



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33. CPA-

The selection of an accounting method for tax purposes by a newly incorporated C corporation:

a. Is made on the initial tax return by using the chosen method.

b. Is made by filing a request for a private letter ruling from the IRS.

c. Must first be approved by the company's board of directors.

d. Must be disclosed in the company's organizing documents.

Explanation



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34. CPA-

A review of Bearing's year 2 records disclosed the following tax information:

Wages $18,000

Taxable interest and qualifying dividends 4,000

Schedule C trucking business net income 32,000

Rental (loss) from residential property (35,000)

Limited partnership (loss) (5,000)

Bearing actively participated in the rental property and was a limited partner in the partnership. Bearinghad sufficient amounts at risk for the rental property and the partnership. What is Bearing's year 2adjusted gross income?

a. $14,000

b. $19,000

c. $29,000

d. $54,000

Explanation



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35. CPA-

Joe is the trustee of a trust set up for his father. Under the Internal Revenue Code, when Joe preparesthe annual trust tax return, Form 1041, he:

a. Must obtain the written permission of the beneficiary prior to signing as a tax return preparer.

b. Is not considered a tax return preparer.

c. May not sign the return unlesshe receives additional compensation for the tax return.d. Is considered a tax return preparer because his father is the grantor of the trust.

Explanation



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36. CPA-

A CPA prepared a tax return that involved a tax shelter transaction that was disclosed on the return. Inwhich of the following situations would a tax return preparer penalty not be applicable?

a. There was substantial authority for the position.

b. It is reasonable to believe that the position would more likely that not be upheld.

c. There was a reasonable possibility of success for the position.d. There was a reasonable basis for the position.

Explanation



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37. CPA-

What is the tax treatment of net losses in excess of the at-risk amount for an activity?

a. Any loss in excess of the at-risk amount is suspended and is deductible in the year in which theactivity is disposed of in full.

b. Any losses in excess of the at-risk amount are suspended and carried forward without expiration and

are deductible against income in future years from that activity.c. Any losses in excess of the at-risk amount are deducted currently against income from other

activities; the remaining loss, if any, is carried forward without expiration.

d. Any losses in excess of the at-risk amount are carried back two years against activities with incomeand then carried forward for 20 years.

Explanation



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38. CPA-

What type of conduct generally will make a contract voidable?

a. Fraud in the execution.

b. Fraud in the inducement.

c. Physical coercion.

d. Contracting with a person under guardianship.

Explanation



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39. CPA-

A trust has distributable net income of $14,000 and distributes $20,000 to the sole beneficiary. Whatamounts are taxable to the trust and to the beneficiary?

Trust Beneficiary

a. $14,000 $0

b. $0 $14,000c. $14,000 $20,000

d. $0 $20,000

Explanation



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40. CPA-

An individual paid taxes 27 months ago, but did not file a tax return for that year. Now the individual wantsto file a claim for refund of federal income taxes that were paid at that time. The individual must file theclaim for refund within which of the following time periods after those taxes were paid?

a. One year.

b. Two years.c. Three years.

d. Four years.

Explanation


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