Cram Review Flashcards
According to Circular 230, practitioners must not sign a tax return if the return takes a position that does not have…
Reasonable basis
Reasonable basis has what probability of being sustained?
20%
When an accountant knows the 3rd party will rely on the financial statements and the financial statements contain material misstatements, the 3rd party must show…2
1 CPA negligent in audit
2 relied on financial statements
A loss sustained from a Nonbusiness bad debt is is always classified as…
2) where are they deducted?
Short term capital loss
2) schedule D
Any stock that is distributed from preferred stock results in…
2) what is the basis?
A taxable stock dividend
2) FMV of shares on date of distribution
Accrual method tax reporting is mandatory fora sole proprietor when there are…
Year end merchandise inventories
Accounts receivable for services rendered by a sole proprietor is…
Not mandatory for accrual method tax reporting
Uniform capitalization method must be used by…
Manufacturers of tangible personal property
The Uniform capitalization rules do not apply to a small retailer or wholesaler who acquires personal property for resale if the retailer’s or wholesaler’s average annual gross receipts for the 3 preceding tax years…
Do not exceed $10 million
Under the uniform capitalization rules marketing costs are…
Not capitalized with respect to inventory
Under MACRS if over 40% of the equipment is put into use in the last quarter…
The mid quarter convention may be used
MACRS for furniture and fixtures
7 year double dealing balance (2/7)
Premiums paid on insurance for loss of income due to accident are…
Not deductible
Cost of maintaining the household for 50% head of household status include…
Insurance on home
To compute AMT before AMT exemption, what 2 items are added back to taxable income?
1 state and local income taxes
2 miscellaneous deductions that exceed 2% of AGI
Home mortgage interest in an AMT problem
Not added to taxable income
What is net earnings from self employment multiplied by to compute the self employment tax?
92.35% (100% - 7.65% FICA)
Shareholder’s share of ordinary income from a S-corp is…
Not included in self employment income
Self employment tax is partially deductible from…
Gross income in arriving at AGI
Executor’s fee received from estate of deceased sister is…
Not considered self employment income
The credit for adoption expenses is…
A nonrefundable credit
American opportunity credit is available on a…
Per student basis
To be eligible for the American Opportunity Credit, an eligible student must be enrolled for at least…
A half time basis for one academic period during the year
Lifetime Learning Credit is available in a…
Per tax payer basis
High income individuals can base their estimated payments on…2
1 90% current year’s tax liability
2 110% prior year’s tax liability
6 year statute of limitations applies if you omitted gross income in excess of…(calculation)
25% x (gross income + capital gains)
What is the holding period of stock received from a bequest of a decedent?
Long term
Section 1245 only applies to…
Gains
If a shareholder owns 50% of a corporation and no more than 50%, when the corporation sells a trailer for loss to the shareholder, what kind of loss is recognized?
Section 1231 loss
If a shareholder owns over 50% of a corporation and the corporation sells to the shareholder, the loss is…
Why?
Disallowed because it’s a related party transaction
For a cash basis tax payer, gain or loss on a year end sake of listed stock arises on…
The trade date
What kind of loss is recognized for machinery sold at a loss…
Sec. 1231 loss
Property held for use in a trade or business is specifically…
Not a capital asset
For sale of a building, Section 1250, what does it do?
Recaptures gain as ordinary income to extent of excess depreciation
For sale of a building, Total gain less any depreciation recapture is…
Sec. 1231 gain
When a building is sold, Sec. 291 is treated as…
Ordinary income
When a building is sold and there has been $40,000 of depreciation and a profit of $60,000. What is the proper treatment of the $60,000 gain?
Sec. 291 ordinary income = $8,000 (20% x $40,000)
Sec. 1231 gain = $52,000
Andria, owns 50% of a partnership and her sister owns 50%, therefore Andria…
Constructively owns 100% of the partnership
Andria, owns 50% of a partnership and her sister owns 50%, therefore if Andria sells anything to the partnership, this is…
A related party transaction
When a corporation distributes marketable securities at a loss in a complete liquidation, what is the nature of the loss recognized?
Long term capital loss
When a stock pays a dividend, when is DRD not allowed?
stock has been held less than 45 days
DRD not allowed
3 entities that pay dividends, where no DRD is allowed?
1 REIT (real estate investment trust)
2 mutual funds
3 money market funds
No federal income tax deduction is allowed for corporate…
Dividend payments to its own shareholders
Net business income per share calculation
Net business income per share=
Net business income/shares outstanding/360 days
If net business income per share is $.30/share, what is net business income for 50 shares bought on January 30th?
$.30/share X 335 days X 50 shares = net business income
If the Executor’s fees are already deducted on the fiduciary return…
They can’t be deducted on the estate tax return
Under Rule 504 of Regulation D, general offerings and solicitations are…
Permitted
Under Rule 504 of Regulation D, an issuer need not restrict…
The purchaser’s right to resell
No general offering or solicitation is permitted and the issuer must restrict the purchaser’s right to resell the securities are both required under…
Regulation D, 505 and 506
Making a partnership a surety requires…
Unanimous consent of partners under partnership law
Death of a joint venture will…
Not dissolve the joint venture
In a corporation, managers do not have…
Do not have limited liability
What name is included in the Articles of incorporation?
Name of registered agent
Limited partnerships and corporations both…
Must file statute with proper state authorities
The Board of directors does not have the authority to…
Amend the articles of incorporation
What entails canceling a contract and placing the parties in the position they were in before the contract?
Rescission
What is an agreement between 3 parties whereby a previous agreement is discharged by…
The creation of a new agreement
What is used by an offeror to terminate an offer?
Revocation
What is a means of discharging a contract, without placing the parties within the same position before the contract?
Release
Article 2 of UCC applies to…
Sales of goods
Common law generally applies to…
Contracts for services and real estate
Under the UCC, an acceptance containing additional terms is…
A valid acceptance
Under the UCC, an acceptance containing additional terms is a valid acceptance unless the…
Acceptance is expressly conditional to terms
Under common law, an acceptance must be…
In exact compliance with contract terms
Can an injured party collect any amount of liquidated damages provided for in the Sales article of the UCC contract?
Why?
No
Any amount = punitive
An instrument that says “pay to Adam” is negotiable if it is…
2) otherwise to be negotiable it must say…
A check
2) pay to the order of Adam
Under the Negotiable Instruments Article of the UCC, for a note to be negotiable it must…
Be payable to order or to bearer
A note that says “pay to Corbin company” is…
Not a negotiable instrument
A check that says “pay to Corbin Company” is…
A negotiable instrument
Under the Negotiable Instruments Article of the UCC, which of the following 2 requirements must be met for a transferee of order paper to become a holder?
1 Delivery and endorsement by transferor
2 possession
Checks are…
Why?
Negotiable
They don’t have to be payable to order or bearer
A draft is not negotiable if it is…
Not payable to order or to bearer
Real defenses include…3
1 bankruptcy
2 material alteration of instrument
3 changes in interest rate
Personal defenses include…3
1 breach of contract
2 breach of warranty
3 fraud in the inducement
The maker of a note has…
Primary liability on that note
Post dating a check does not…
Not destroy negotiability
Post dating a check does not destroy negotiability, but makes the check…
Properly payable on or after the date written on the check
If a check is post dated November 20th, it will…
Cease to be demand paper and is payable November 20
A trade acceptance is a special type of draft where the…
Seller orders the buyer/designee to make payment
Which of the following is not a warranty make by the seller of a negotiable warehouse receipt to the purchaser of the document?
Not = Warehouseman will honor the document
Under the UCC, a warehouse receipt is negotiable if by its terms the goods are…
Delivered to bearer or order of named person
Under the Revised UCC Secured Transaction Article, which of the following after acquired property may be attached to a security agreement given to a secured lender? 2
1 inventory
2 equipment
If a security interest on a computer is perfected before being sold to a customer…
Creditor may repossess
A voluntary bankruptcy petition may be…
Filed jointly by husband and wife
Does a debtor need to be insolvent to file a voluntary bankruptcy petition?
No
A cash payment for a car 2 months before bankruptcy is not preferential because the payment was…
A contemporaneous exchange for new value
Principals are not responsible for misrepresentations of…
Independent contractors
An undisclosed principal cannot…
Cannot ratify a contract of an agent
A common carrier Bailee generally would avoid liability for loss of goods entrusted to its care if goods are…
Improperly packed by party shipping them
A mortgagor’s opportunity to redeem will be terminated by a judicial foreclosure sale unless…
The jurisdiction has enacted s statutory right of redemption
What is it called when a tenant stays in possession of the leased property after the expiration of the lease without the landlord’s consent?
Tenancy at sufferance
