30Qs

Question 1

PLR-0004B

Which of the following may not result in automatic expulsion from the AICPA?

1. Revocation of CPA certificate by an authorized body.
2. Filing a fraudulent tax return.
3. Failure to file a required tax return.
4. Conviction for a felony or a misdemeanor.

Answer 1

4.

The requirement is to identify the item that may not result in automatic expulsion from the AICPA. Conviction for a misdemeanor would not result in automatic expulsion.

Question 2

PLR-0098

How many public company audits per year does a CPA firm that is registered with the Public Company Accounting Oversight Board (PCAOB) have to perform before it receives an annual inspection from the PCAOB?

1. One audit.
2. More than 10 audits.
3. More than 50 audits.
4. More than 100 audits.

Answer 2

4.

This answer is correct. CPA firms that audit more than 100 issuers must have an annual inspection by the PCAOB.

Question 3

PLR-0047B

A tax return preparer is subject to a penalty for knowingly or recklessly disclosing corporate tax return information, if the disclosure is made

1. To enable a third party to solicit business from the taxpayer.
2. To enable the tax processor to electronically compute the taxpayer’s liability.
3. For peer review.
4. Under an administrative order by a state agency that registers tax return preparers.

Answer 3

1.

A tax return preparer is subject to a penalty for knowingly or recklessly disclosing corporate tax return information, if the disclosure is made to enable a third party to solicit business from the taxpayer.

Question 4

PLR-0002B

Which of the following is not an accurate statement about the requirements of the AICPA Uniform Accountancy Act (UAA)?

1. The UAA requires all accountants to be licensed.
2. The UAA contains requirements for the issuance of CPA certificates.
3. The UAA contains a substantial equivalency provision to allow for movement between states.
4. The UAA contains provisions for continuing education.

Answer 4

1.

The UAA only requires accountants who perform attest services or compilations of financial statements to be licensed.

Question 5

PLR-0014

Which one of the following, if present, would support a finding of constructive fraud on the part of a CPA?

1. Privity of contract.
2. Intent to deceive.
3. Reckless disregard.
4. Ordinary negligence.

Answer 5

3.

This answer is correct because constructive fraud requires the following elements:

(1) misrepresentation of a material fact,
(2) reckless disregard for the truth,
(3) reasonable reliance by the injured party, and
(4) injury. Therefore, if reckless disregard is present, it would support a finding of constructive fraud on the part of a CPA.

Question 6

AICPA.101119REG-SIM

Which of the following documents does NOT govern the conduct of a CPA who is engaged in providing tax services?

1. AICPA’s Code of Professional Conduct
2. AICPA’s Statements on Standards for Tax Services
3. Circular 230
4. Internal Revenue Service Audit Guides

Answer 6

4.

Question 7

PLR-0081

Fowler, CPA, was performing a review of the financial statements of Tut Corp., a nonpublic company, when he discovered evidence that the company’s cashier may be embezzling funds. However, since he was not performing an audit of the company, Fowler did not follow up on the matter, nor did he inform management of his suspicions. Which of the following is accurate about Fowler’s liability?

1. Fowler will not be held liable to Tut Corp. because management of Tut Corp. was not relying on the financial statements to make investment decisions.
2. Fowler will be held liable to Tut Corp. because he did not follow up on the matter nor did he inform management of the matter.
3. Fowler will not be held liable to Tut Corp. because management of Tut Corp. is also negligent for not having adequate controls.
4. Fowler will not be held liable to Tut Corp. because management of Tut Corp. should have known about the embezzlement.

Answer 7

2.

This answer is correct. Whenever the CPA finds evidence of a matter that would be of interest to management, he or she should inform management.

Question 8

AICPA.081903REG-1D

When an ethics complaint carrying national implications arises, which entity typically handles it?

1. SEC.
2. PCAOB.
3. State CPA society.
4. AICPA.

Answer 8

4.

Question 9

PLR-0039

A CPA partnership may, without being lawfully subpoenaed or without the client’s consent, make client workpapers available to

1. An individual purchasing the entire partnership.
2. The IRS.
3. The SEC.
4. Any surviving partner(s) on the death of a partner.

Answer 9

4.

Question 10

AICPA.930503REG-BL

Which of the following elements, if present, would support a finding of constructive fraud on the part of a CPA?

1. Gross negligence in applying generally accepted auditing standards.
2. Ordinary negligence in applying generally accepted accounting principles.
3. Identified third party users.
4. Scienter.

Answer 10

1.

Fraud usually involves intentional deception. This question, however, asks about a close cousin of fraud – constructive fraud. In a constructive fraud case, gross negligence (sometimes referred to as recklessness) acts as a substitute for intentional deception. Ordinary negligence or carelessness is not serious enough to act as a substitute for intent

Question 11

AICPA.120726REG

An IRS agent has just completed an examination of a corporation and issued a “no change” report. Which of the following statements about that situation is correct?

1. The taxpayer may not amend the tax return for that taxable year.
2. The IRS generally does not reopen the examination except in cases involving fraud or other similar misrepresentation.
3. The IRS may not reopen the examination.
4. The IRS may not examine any other tax return of the corporation for a period of one year.

Answer 11

2.

After a “no change” report the IRS cannot reopen the examination unless the corporation has committed fraud.

Question 12

AICPA.100992REG-SIM

Pak worked for EPS marketing trusts and other asset protection devices through a nationwide multi-level marketing network of financial planners. The IRS labeled the trusts illicit tax shelters. EPS then started calling the trusts by new names but continued to market them. Pak was EPS’s executive vice president, spoke at its public events, and received sales overrides from agents he recruited as sales representatives for EPS. As Pak explained them, the trusts allowed clients to transfer all their income to a “donor-directed” trust from which they could spend the money on anything they wanted, without paying taxes on it. The IRS brought an action against Pak, seeking to fine him for promoting an abusive tax shelter in violation of 26 U.S.C. 6700. Which of the following is true?

1. Pak is probably liable.
2. Pak is probably not liable, because he did not organize or participate in sale of the shelters.
3. Pak is probably not liable, because he did not make any materially false statements that affect tax liability.
4. B and C.

Answer 12

1.

Pak meets the requirements for violating Section 6700 in that he participated in the sale of a tax shelter (in his role as executive vice president of EPS, speaker at its events, etc.) and he made materially false statements because this device is obviously bogus.

Question 13

Question 4 (PQ3788)

Acceptance of a bilateral offer sent by an authorized medium is effective only upon the offeror’s receipt of the acceptance.

• True
• False

Answer 13

False

a. Common law and the mirror image rule (noted earlier in discussion of rejection and counteroffer)—Acceptance must be absolute, unequivocal, and unconditional, or it is treated as a counteroffer, not an acceptance.
b. UCC Article 2 and Language of Acceptance—UCC 2-207—Modifies the common law based on a definite expression of acceptance. A definite expression of acceptance followed by additional terms may or may not form a contract with the additional terms. Remember that whether the terms become a part of the contract depends on whether the parties are merchants and whether the terms are material, whether the offer is limited, and whether the offeror objects upon receiving the additional terms.

Question 14

aq.form.off.acc.004_0718

Which of the following would be a valid offer?

1. “I offer to sell you my Lot 59, located at the intersection of Snowberry Loop and Gambel Oak roads in Show Low, Arizona.”
2. “I offer to sell you a part of my inventory in three weeks for $750,000.”
3. “I offer to sell you all the propane gas that you need for heating your home this winter.”
4. “I offer to hire you as a researcher for three months.”

Answer 14

3.

Correct. Under the UCC, the exact quantity is not specific, but this is a requirement contract—the party agrees to purchase the amount needed for heating, which could vary from year to year, but it based on a number from other years.

4.

Incorrect. A common law contract offer needs a price, and this has no price.

Question 15

AICPA.920522REG-BL

On April 1, Fine Corp. faxed Moss an offer to purchase Moss’s warehouse for $500,000. The offer stated that it would remain open only until April 4 and that acceptance must be received to be effective. Moss sent an acceptance on April 4 by overnight mail and Fine received it on April 5.

Which of the following statements is correct?

1. No contract was formed because Moss sent the acceptance by an unauthorized method.
2. No contract was formed because Fine received Moss’s acceptance after April 4.
3. A contract was formed when Moss sent the acceptance.
4. A contract was formed when Fine received Moss’s acceptance.

Answer 15

2.

Although most acceptances of bilateral offers are sent by an authorized medium and effective when sent by the authorized medium, the offeror can condition acceptance to not be effective until received. Therefore, regardless of the medium used, the acceptance must be received before the offer terminates by lapse of time. This offer terminated at midnight on April 4, and the acceptance was not received until April 5, after the offer was terminated.

Question 16

form.off.acc.aq.007_0819

On January 31, 2019, Ralph sent a written offer to Jake to sell his classic Triumph for $6,500. Jake received the offer on February 2, 2019. On February 3, 2019, Jake emailed Ralph and asked if Ralph could hold the car until February 10, 2019 so that he could sell some stock to get the cash. On February 4, 2019, Ralph emailed Jake, “Of course. I will hold the car.” Later on that day, Tom saw the Triumph at Ralph’s house with a “For Sale” sign on it and offered Ralph $7,000. Ralph sold the Triumph to Tom and sent Jake a letter on February 5, 2019, revoking his offer. On February 6, 2019, Jake sent Ralph a letter with a cashier’s check for $6,500. Jake received the revocation on February 7, and Ralph received Jake’s check and acceptance on February 8, 2019.

Which of the following statements is correct?

1. Ralph was obligated to hold the Triumph for Jake until February 10, 2019.
2. Jake had a merchant’s firm offer from Ralph.
3. Jake can get the car back from Tom.
4. Ralph’s offer could be revoked at any time.

Answer 16

4.

Ralph could revoke his offer at any time, but he must revoke it before the offeree accepts.

Give feedback

1.

You Answered Incorrectly.

Incorrect. Ralph was not paid for keeping the offer open and he is not a merchant, so there was no obligation to hold the offer open.

Question 17

form.off.acc.aq.008_0819

On January 31, 2019, Ralph sent a written offer to Jake to sell his classic Triumph for $6,500. Jake received the offer on February 2, 2019. On February 3, 2019, Jake emailed Ralph and asked if Ralph could hold the car until February 10, 2019, so that he could sell some stock to get the cash. On February 4, 2019, Ralph e-mailed Jake, “Of course. I will hold the car.” Later on that date, Tom saw the Triumph at Ralph’s house with a “For Sale” sign on it and offered Ralph $7,000. Ralph sold the Triumph to Tom and sent Jake a letter on February 5, 2019, revoking his offer. On February 6, 2019, Jake sent Ralph a letter with a cashier’s check for $6,500. Jake received the revocation on February 7, and Ralph received Jake’s check and acceptance on February 8, 2019.

Which of the following statements is correct?

1. Ralph’s revocation of his offer was effective before Jake’s acceptance was sent, so Jake did not have the power of acceptance.
2. Jake has formed a valid contract for the purchase of the Triumph.
3. The sale of the car to Tom revoked the offer to Jake.
4. Jake did not have the power of acceptance because he asked for the option, which changed the original offer terms.

Answer 17

2.

Jake accepted a still-open offer because he had not received the revocation.

Question 18

CONT-0037

Which of the following is not required in order for the plaintiff to prevail in an action for innocent misrepresentation?

1. That the misrepresentation induced reliance.
2. That the misrepresentation amounted to gross negligence.
3. That the plaintiff acted promptly and offered to restore what was received.
4. That the plaintiff relied upon the misrepresentation.

Answer 18

1. This answer is incorrect because the misrepresentation, although innocent, must have been a substantial factor in inducing the plaintiff to enter into the contract.
2. This answer is correct because an innocent misrepresentation is a misstatement of fact made with an honest and justifiable belief (in good faith), without intent of defraud (i.e., scienter). Therefore, a plaintiff is not required to prove that the misrepresentation amounted to gross negligence to prevail in an action for innocent misrepresentation.
3. This answer is incorrect because in an action for innocent misrepresentation, any benefits received by the parties must be returned in order to restore each party to his/her precontractual position.
4. This answer is incorrect because the plaintiff must show that there was justifiable reliance upon a representation that was made with intent to be relied upon.

Question 19

AGEN-0009

If an employee commits a tort injuring a third party while acting within the scope of his employment, which of the following is correct?

1. The third party may recover the damages from either the employer or the employee or both.
2. The third party must elect to hold either the employer or the employee liable but not both.
3. The employer is liable but not the employee.
4. The employee is liable but not the employer.

Answer 19

1.

This answer is correct. When an employee commits a tort while acting within the scope of the employment, both the employer and the employee are liable.

Question 20

SECU-0003

In order for a security interest in goods to attach, the

1. Debtor must sign a security agreement which adequately describes the goods.
2. Debtor must retain possession of the goods until the underlying debt has been satisfied.
3. Creditor must properly file a financing statement.
4. Creditor must have given value.

Answer 20

1. This answer is incorrect because the creditor may create the security interest by taking possession of the collateral; no written agreement is needed then.
2. This answer is incorrect because there is no requirement that the debtor retain possession of the collateral.
3. This answer is incorrect because the creditor does not have to file a financing statement for the security to attach. A creditor may file a financing statement to perfect his security interest.
4. This answer is correct because a security interest attaches when all of the following have been met, in any order: The debtor has rights in the collateral, the creditor extends value, and a record of the security agreement exists. Thus, the creditor must give value for attachment to occur.

Question 21

CONT-0035

Pam orally agreed to sell Jack her used car for $400. At the time the contract was entered into, the car had been stolen and its whereabouts were unknown. Neither party was aware of these facts at the time the contract was formed. Jack sues Pam for her failure to deliver the car in accordance with their agreement. Pam’s best defense would be that the

1. Agreement was unenforceable because it was not evidenced by a writing.
2. Risk of loss for the car was on Jack.
3. Agreement is unconscionable.
4. Parties were under a mutual mistake of a material fact at the time the contract was entered into.

Answer 21

1. This answer is incorrect because the Statute of Frauds under the UCC requires written evidence of the contract only for the sale of goods for $500 or more. Therefore, a writing would not be required in this situation so the Statute of Frauds would not cause the contract to be unenforceable.
2. This answer is incorrect because under the UCC, absent any breach, the risk of loss passes from a nonmerchant seller to the buyer on tender of delivery. However, in this situation, the risk of loss did not pass to Jack because the car had been stolen and tender of delivery never occurred.
3. This answer is incorrect because there is no evidence to support the theory that Jack has a superior bargaining position or has otherwise taken unfair advantage of Pam.
4. This answer is correct because both parties were unaware of the fact that the car had been stolen, and entered the contract under a mutual mistake of a material fact. Consequently, the contract is voidable at the option of either party.

Question 22

AICPA.REG.sources.tax-0013

Use V-O keys to navigate.

Use V-O keys to navigate.

Which of the following is a list of courts that are referred to as courts of original jurisdiction, or trial courts, for tax matters?

1. The Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.
2. The Tax Court, the U.S. District Court, and the U.S. Bankruptcy Court.
3. The Tax Court, the U.S. Court of Federal Claims, and the U.S. Court of Appeals.
4. The U.S. District Court, the U.S. Court of Federal Claims, and the U.S. Court of Appeals.

Answer 22

A.

CORRECT! There are three courts of original jurisdiction: the Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.

Question 23

AICPA.900503REG-BL

Maco Corp. develops shopping centers and regularly engages real estate brokers to act on its behalf in acquiring parcels of land. The brokers are authorized to enter into such contracts but are instructed to do so in their own names, without disclosing Maco’s identity or Maco’s relationship to the transaction.

If a broker enters into a contract with a seller on Maco’s behalf,

1. Maco will be bound by the contract because of the broker’s apparent authority.
2. The broker will not be personally bound by the contract because the broker has express authority to act.
3. Maco will not be liable for any negligent acts of the broker committed while acting on Maco’s behalf.
4. The broker will have the same authority as he would have had if Maco’s identity had been disclosed.

Answer 23

1. Incorrect. If the identity and existence of the principal are unknown to third parties, there can be no reliance or apparent authority.
2. Incorrect. The broker is bound by the contract because the broker entered into it with the third party. The broker will need to be reimbursed by Maco, but the broker does take a risk by signing the contract.
3. Incorrect. The principal is liable just like in a disclosed agent situation–the other aspects of the agency relationship do not change.
4. Correct! Although the broker does not have apparent authority, the broker does have the same actual authority as if there had been disclosure.

Question 24

BANK-0009B

Eckson was granted an order for relief after having filed a petition in bankruptcy. Which of the following actions would bar a general discharge in bankruptcy?

I.Ten months before the bankruptcy proceedings, Eckson had obtained credit from Cardinal Corporation by using false information on the credit application.

II.Six months before he filed the petition, Eckson removed assets from his land with the intent to defraud creditors.

III.During the bankruptcy proceedings, Eckson made a false entry on some records pertaining to his assets.

1. I only.
2. I and II only.
3. II and III only.
4. I, II, and III.

Answer 24

1. Obtaining credit by fraud involving the debtor’s financial condition causes that debt to be nondischargeable. It, however, does not prevent a general discharge of all debts.
2. Actions that bar a general discharge in bankruptcy include removing or destroying property within twelve months prior to filing the petition with intent to hinder, delay, or defraud creditors.
3. Actions that bar a general discharge in bankruptcy include removing or destroying property within twelve months prior to filing the petition with intent to hinder, delay, or defraud creditors. Also included is making a false entry in a document related to the bankrupt’s affairs.
4. Obtaining credit by fraud involving the debtor’s financial condition causes that debt to be nondischargeable. It, however, does not prevent a general discharge of all debts

Question 25

Yost contracted with Egan for Yost to buy certain real property. If the contract is otherwise silent, Yost’s rights under the contract are

1. Assignable only with Egan’s consent.
2. Nonassignable because they are personal to Yost.
3. Nonassignable as a matter of law.
4. Generally assignable.

Answer 25

4.

This answer is correct. Generally, a party’s rights in a contract are assignable and duties are delegable. However, there are three exceptions: (1) when the contract involves personal services, trust, or confidence; (2) when a provision of the contract or a statute prohibits assignment or delegation; and (3) if assignment would materially change the risk or burden of the obligor. Because the contract between Egan and Yost for the sale of real property does not constitute one of the three exceptions to the right of assignment, Yost’s rights are generally assignable.

Question 26

AICPA.901130REG_0319

In 2019, Joan Reed exchanges commercial real estate that she owns for other commercial real estate, plus $50,000 cash. The following additional information pertains to this transaction:

Property given up by Reed

Fair market value$500,000

Adjusted basis$300,000

Property received by Reed

Fair market value$450,000

What amount of gain should be recognized in Reed’s 2019 income-tax return?

1. $200,000
2. $100,000
3. $50,000
4. $0

Answer 26

3.

When a taxpayer exchanges property for “like-kind” property, no gain or loss is generally recognized. However, if boot is received, gain is recognized to the extent of boot received in the exchange. The exchanges of real estate for “like-kind” real estate qualify for non-recognition under the “like-kind” exchange rules.

Reed gave up real estate with an adjusted basis of $300,000. Reed received real estate with a fair market value of $450,000 and $50,000 in cash. Hence, Reed realized a gain of $200,000.

However, this gain is only recognized to the extent of the boot that Reed received, $50,000.