REG 1 Flashcards
True or False: Worker’s Compensation is included in gross income
False: it is excluded
True or False: Interest on state government obligations is taxable
False: it is normally NOT taxable
True or false: a tax refund and its interest is taxable
False: only the interest on the tax refund is taxable
True or false: unemployment compensation is included in gross income
True
True or False: Property Settlements are taxable
False. Child support also is NOT taxable
True or false: Interest on federal and state municipal bonds is taxable
False
AGI limitation for charitable contribution
10%
AGI limitation for property contributed to charity
30% of AGI
Contribution limit for a church?
50% of AGI
True or false: interest on auto loans are deductible
False
True or false: Premiums on disability insurance to pay worker if injured or unable to work are deductible as medical expenses
False: premiums on disability insurance are not deductible since they are made to replace lost income
What is included in AGI: Salary, Alimony paid to former spouse, inheritance from grandparent, and proceeds of a lawsuit for physical injuries
Salary and alimony
True or false: contributions of appreciated property are deducted at the lesser of FMV or the property’s basis if held longer than a year
False: deducted at FMV; DEPRECIATED property uses the lesser of basis or FMV
True or false: Gambling losses up to the amount of gambling winnings are subject to the 2% floor
False
True or false: employee business expenses are subject to the 2% floor
True
True or false: Self employment tax is an itemized deduction
False: Self employment tax is an adjustment to arrive at AGI
What is the deduction for investment interest expense if investment income is 10K, noninterest investment expenses of 8K and investment interest expense of 5K?
10K-8K= 2K , lesser of 2K or 5K –> 2K is the correct answer
Which of the following credits can result in a refund even if the individual had no income tax liability?
A: child and dependent credit B: earned income credit C:elderly and permanently and totally disabled child D: credit for prior year minimum tax
True or false: child care credit and retirement savings contribution credit are nonrefundable
True
If gross income exceeds $150,000, which method is used to estimate the annual payment of tax?
the annualization method; otherwise, if GI does NOT exceed $150,000 then you can use the seasonal OR annualization method
True or false: if there is an understatement of 30% of GI, then the statute of limitations on assessing additional tax is 3 years
False: the statute of limitations is 6 years since 30% is greater than 25%; otherwise if less than 25%, then the statute of limitations is 3 years
True or false: the cost of merchandise and the business expenses other than the cost of merchandise are both deductible when calculating business income
False: the cost of merchandise is ONLY deductible
True or false: Intercompany dividends are taxable
False
In a tax free incorporation, what percentage qualifies as “control”?
80%
True or false: Nonshareholder bonuses are deductible
True: only when they are paid within 2 1/2 months after the close of the tax year
Which of the following credits CANNOT be claimed by corporations: earned income, alternative fuel production, foreign tax credit, general business credit
Earned income credit; this credit can only be claimed by INDIVIDUALS
Two requirements for a personal holding company are?
more than 50% of the value is owned by 5 or fewer individuals and at least 60% of its AGI for the year is investment-type income
Distributions from complete liquidation are treated as what?
Capital gains or losses; it is treated as full payment for stock
What is the dollar amount for the accumulated earnings credit?
$250,000; this amount is deducted in order to find the amount that will be subject to the accumulated earnings tax
True or false: intangibles such as goodwill, licenses, franchises, trademarks, and covenants not to compete are amortized over 5 yrs using SL
False; 15 years!
True or false: intangible assets with indefinite lives are subject to amortization and an impairment test
False; only an impairment test; assets with FINITE lives are subject to both
True or false: Business gifts are deductible up to a maximum of $15 per recipient per year
False; deductible up to $25
True or false: Tax free income (municipal) increases basis
True
Fill in the blank: The owner’s basis in a S corp. is _____ by the owner’s share of profits and _______ by the owner’s share of losses
increased; decreased
Three characteristics of unrelated business income
derived from an activity that constitutes a trade or business, is regularly carried on, is not substantially related to the organization’s tax exempt purpose
True or false: using unpaid volunteers makes unrelated business income related
True
True or false: when you sell stock for a higher price than the related party’s purchase price, you use the donor’s basis
True; use the basis instead of the price you purchased the stock from the related party
TF: Property acquired as a gift has a rollover cost basis
True; do NOT use FMV
Real property is:
land and everything permanently affixed to it
TF: An automobile for personal use is a section 1231 asset
False; CAPITAL ASSET
TF: Capital assets do not include property held by the TP for investment
False; they DO include
Gain realized equation w/ boot paid:
FMV of prop. received - boot paid (+ boot received) - adjusted basis of prop. given up (includes deduction of ADPR.)
G/L recognized equation:
lesser of realized gain or boot received
New basis equation:
adjusted basis of prop given up + boot paid (- boot received)+ gain recognized (if any)
TF: When liabilities are assumed, they are considered as boot received when calculating the G/L recognized
False; they are only considered as “boot paid” to calculate the REALIZED gain and the adjusted basis
TF: Liabilities relived of from the TP is boot paid
False; boot RECEIVED
TF: Liabilities assumed by the TP is boot received
False; boot PAID
TF: Marketable securities are classified as capital assets if the TP is a dealer
False; TP must NOT be a dealer
TF: Common stock and partnership interests are NOT included in like-kind exchanges
True
Section 1245 dpr. recapture:
Lesser of the depreciation taken or the gain recognized
TF: Real property (i.e. buildings) is subject to the mid month convention under MACRS
True
TF: Personal property (machinery and equipment) is subject to the half year convention under MACRS
True
TF: Nonresidential property is depreciated over 40 years using SL
False; 39 years
TF: In a nonliquidating distribution, the partner takes the partnership basis for assets distributed
True
TF: Charitable contributions, dividend income, and capital losses are NOT separately stated items
False; they are not deducted when calculating the partnership’s ordinary income
TF: Contracts are ordinarily assignable
True
TF: In a type b reorganization, the stock of the target corporation is acquired solely for the preferred stock of either the acquiring corporation or its parent
FALSE; voting
In a type b reorganization, the acquiring corporation must have control of the target corporation _____ after the acquisition
immediately
Almost all ______ policies are personal to the insured and cannot be assigned
insurance
TF: Taxes assessed against local improvements are deductible if they are of a nature that tends to increase the value of the property being assessed
FALSE; NOT
One of the requirements of a simple trust is that the trust not distribute ________.
principal (corpus)
TF: “Short swing” transactions are illegal.
True
Unrelated business income of charitable trusts is taxed at ____ rates.
trust
TF: When a capital loss is carried to another year, it is treated as a short-term loss
True
The 5-year class includes automobiles, general-purpose light trucks, computers, and ____ ______ (typewriters, calculators, copiers, etc.)
office machinery
TF: The 7-year class includes heavy, special-purpose trucks, and office furniture and fixtures (desks, filing cabinets, etc.).
True
TF: A CPA is not liable to third parties due to mere negligence
True
TF: A CPA is liable to third parties due to gross negligence or fraud
True
Maximum allowable deduction for Section 179 expenses is :
$25,000; reduced dollar for dollar for purchases/expenses over 200,000
TF: Ordinary income from a S corporation is not subject to self employment tax
True
TF: If a person files a Schedule H, he needs to also file Forms 940 and 941
False; does NOT need to file Forms 940 and 941
$14,000 is the exemption amount for gifts 2014
True
Nonliquidating distribution JE:
Debit to Retained Earnings, Credit assets that’s distributed
Depreciable property used in a business is a Section ___ asset
1231
Section ____ only applies to the sale of personal property at a gain
1245
Section ____ applies to the sale of real property at a gain.
1250
TF: Funeral expenses are deductible on an individual’s income tax return.
NOT deductible
TF: The basis of contributed property is not the same in the hands of the partnership as it was in the hands of the partner who contributed it.
False; IS the same
Hobby expenses are reported on Schedule A as __ ___`
itemized deductions
Rule ___ prohibits the retention of client records after the client has demanded them, even if the engagement is terminated prior to its completion
501
Only gifts of present interests are eligible for the ____ annual exclusion.
$14K
For alternative minimum tax purposes, unreimbursed medical expenses must exceed___ of adjusted gross income in order to be deductible.
10%
TF: Nonliquidating distributions of a corporation will not reduce the retained earnings of the corporation
False; WILL reduce; nonliquidating distributions are also taxable as a dividend when earnings and profits exist
TF: A nonliquidating dividend in excess of a stock’s basis will be taxable as a capital gain
True
the PCAOB includes a chairman who may be a CPA if the individual has not practiced as a CPA for____years.
five
The estate tax return (IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return) is due ___ months after the date of death of a taxpayer
nine
TF: If a seller is a merchant, risk of loss passes to the buyer when the merchant delivers the goods to the buyer
True
The FASB’s Mission Statement recognizes that their mission is to improve the accounting standards that apply to ___ ____
nongovernmental entities
If the return omits an amount of income greater than 25% of the gross income shown on the return, the statute of limitations is ___ years
six
A ___ trust does not distribute principal (corpus)
simple
TF: Any foreseen or known third party who relied on the report can hold the CPA accountable due to negligence
True
TF: Home mortgage interest is not deductible for two personal residences subject to certain limits.
False
Risk of loss passes to the buyer upon tender of delivery to the buyer if the seller is a ____
nonmerchant
Taxpayers may contribute (and deduct) up to _____ to a traditional individual retirement account (IRA), and this may equal up to 100% of their earned income
5,500
TF: When a trust instrument is silent regarding a trustee’s powers, the trustee has the implied power to lease trust property to third parties
True
A partner’s share of ordinary income from an investment in a limited partnership reported in Form 1065, Schedule K-1 should be reported in Schedule __, Supplemental Income and Loss.
E
TF: When it comes to items received by bequest from a deceased person, all capital gains are forgiven at the time of death
True
TF: When engaged in illegal activities, a TP may NOT deduct cost of goods sold
False; they must deduct the cost of merchandise (COGS)
Rule ___ prohibits the retention of client records after the client has demanded them, even if the engagement is terminated prior to its completion
501
TF: A child using Form 8615 may not be subject to the net investment income tax (NIIT)
False; is
The NIIT is a 3.8% tax on the lesser of___ ___ ___or the excess of the child’s modified adjusted gross income
net investment income
A child is taxed on unearned income greater than _____
$2000
UNICAP rules do not apply if average annual gross receipts do not exceed $__ million for the past three years.
10
What is the annual exclusion amount for MFJ?
$14,000
TF: Mortgage interest on a personal residence is an itemized deduction
True
For liquidation distributions, the basis of property received is the _____
adjusted basis LESS cash received
A personal exemption is allowed of $___ for a trust that is required to distribute all of its income currently (i.e., simple trusts).
300
TF: FOR TRUSTS: According to IRC Section 265, expenses that are not related to a particular type of income (indirect expenses) must be allocated proportionately between taxable and nontaxable income.
True
TF: A qualified personal service corporation is not allowed to use the cash basis of accounting
False; it is!
TF: A trade acceptance is a three party instrument
False; a draft is; a draft concludes with a drawer ordering a drawee paying a third party a sum of money
For a cash-basis taxpayer, gain or loss on a year-end sale of listed stock arises on the:
trade date
TF: When property that is owned by the taxpayer is transferred to his controlled corporation (80% owned immediately following the transfer of property to the corporation), NO gain or loss is recognized if the exchange is solely for stock.
True
If a child has interest, dividends, and other unearned income of more than $____, part of that income may be taxed at the parent’s tax rate instead of the child’s tax rate
2,000
For a liquidating distribution, if the FMV of the property is greater than the liability, then the gain calculated is equal to:
The FMV - Adjusted Basis
TF: All offerings made under Regulation A will be exempt from the full registration requirements of the Securities Act of 1933?
True;
Work Opportunity Credit requirements:
Must work 120 hours
__% of wages credit for employees that work 120 - 400 hours
__% of wages credit for employees that work over 400 hours
Target group (e.g. ex-felon)
Began work before Jan 1, 2014
25; 40
Section 1244 STOCK loss is treated as ____ loss
ordinary
TF: A subchapter C corporation pays taxes on profits at the entity level and can deduct dividends paid (distributions to shareholders) before calculating the taxable income. Shareholders then pay tax again on those dividends.
False; CANNOT deduct dividends paid
Contributions to Coverdell education savings accounts must be made before the account beneficiaries are __ years old
18
TF: S corp distributions are NOT taxable to the extent of accumulated earnings and profits (C corporation earnings),
False; they are!
TF: A 100% redemption of a shareholder’s stock is one of the categories of redemptions that qualify to be treated as a sale or exchange
True
TF: Moving expenses are not an adjustment to AGI
False; they ARE
TF: LT capital loss and charitable contributions are separately stated items
True
TF: Losses are allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%.
False; NOT ALLOWED
How is aggregate deferral calculated?
Based on the number of months from the partnership year-end to the partner’s year-end, multiplied by the partner’s ownership percentage.
TF: A beneficiary may also serve as an executor for the estate.
True
TF: A formula for sharing losses will be applied to sharing profits.
NOT
Deductible medical expenses are those that exceed __% of the taxpayer’s adjusted gross income.
10
TF: For the year 2014, the maximum Section 179 expense is $20,000
False; 25K; if over 200K, reduce the allowable deductions dollar for dollar
The FASB’s Mission Statement recognizes that their mission is to improve the accounting standards that apply to ______ entities
nongovernmental
TF: The estate is allowed a deduction for state death taxes paid.
True
TF: Moving expenses are an itemized deduction
False; NOT an itemized deduction
TF: Federal income taxes are deductible in determining taxable income
False; NOT deductible
TF: Beneficiaries can be taxed on amounts distributed that are greater than the DNI in the trust
False; amount distributed will NOT be taxed on amount greater than DNI
TF: To win a civil case under Section 11 of the Securities Act of 1933, the plaintiff does not have to prove that the defendant had intent to deceive nor that the plaintiff had relied on the registration statement
True
For a cash-basis taxpayer, gain or loss on a year-end sale of listed stock arises on the: trade or settlement date?
TRADE DATE
TF: There can be no deduction for losses as a result of passive activities.
True
TF: An accruable expense is one in which the services have been performed but has been paid for
False; has NOT been paid for
TF: Passive activity losses are deductible in the year the partnership is disposed of if there are any unused passive activity losses
True
TF: Interest expense on money borrowed to fund business activities is deductible as an item of ordinary business expense on Schedule F (or Schedule C)
True
TF: Roth IRA contributions are deductible contributions, and they are not reported on the personal tax return
False; NOT deductible
TF: For a nonqualified stock option, if there is an ascertainable value, the person will be taxed on that amount at the date of grant
True
AGI limit for donated property is:
30%
TF: Interest on auto loans is deductible
FALSE; NOT deductible
For Keogh plans, earned income is net self employment earnings reduced by the amount of the allowable Keogh deduction and _____
half of the self employment tax
TF: Employee business expenses are NOT subject to the 2% of AGI floor
False; they ARE
Medical expenses in excess of 10% of AGI are _____ deductions
itemized
State income tax is OR is not an itemized deduction
IS
The deduction for investment interest expense is limited to net taxable investment income, which is taxable investment income minus all related investment expenses (_____)
other than investment interest expense
Tf: Mortgage interest is not deductible on Schedule A
False; it is deductible; so are real estate taxes
Utilities are or are NOT a deductible personal expense
NOT
TF: The loss on Section 1244 stock (worthless) is available transferee of the stock
False; ONLY TO THE ORIGINAL OWNER
A personal holding company deducts net long term capital gains less related federal income taxes and ____
federal income taxes
TF: PHC’s are not liable for the accumulated earnings tax
True
TF: You can use the preceding year method if you have no tax liability in the prior year
False
What business credit combines several nonrefundable tax credits?
General business credits
When a corporation dissolves it ___ its liquidation expenses
deducts
Shareholders treat property received in a complete liquidation of a corporation as full payment for their ___
stock
Minimum accumulated earnings credit is:
250,000
TF: When a transferring shareholder in control of a corporation receives boot, he/she recognizes a gain/loss
True
An S corporation or a C corporation, which has the most flexibility when choosing a tax year?
C corporation
____ income is a separately stated item and NOT included in net business income
Dividend
TF: Annual information returns are required for all exempt organizations
False
Unrelated business taxable income must be derived from an activity that constitutes a trade or business that’s regularly carried on and is ____________________
NOT substantially related to the organization’s tax exempt purpose
TF: An S corporation may not deduct compensation of officers
False; MAY DEDUCT
TF: A company can use the 100% of the PY if they did NOT have a tax liability in the PY
False
Any payment made after the initial due date of the return is subject to the __________ penalty
failure to pay
What is the penalty for failure to pay percentage?
Half a percent for each month OR fraction of a month up to a MAXIMUM of 25%
All amounts paid after the initial due date are subject to interest so what is the interest percentage?
1% for each month OR fraction of a month
What is the tax basis for a SH when the basis in its property contributed is 10 and the cash distributed to the SH is 15?
The tax basis is 25; the B/S basis is the FMV of the property
The different between the life insurance proceeds where the corp is a beneficiary and the cash surrender value of the policy is _____ to current E&P
ADDED
The premium on a life insurance policy where the corporation is a beneficiary will be ____ from current E&P
subtracted
Real property not used in a trade or business is a ___ ____
capital asset
TF: A realized loss is recognized in like-kind exchanges
False
TF: The basis of property acquired by bequest or inheritance is the property’s ______
Fair market value on the date of the decedent’s death
Gift tax basis rule: when the sale price is ____ both the FMV and basis, then there is no G/L
in between
Real property (buildings) is subject to the _______ convention
mid month
Nonresidential realty is depreciated over ____ years
39
Under Section 1245 recapture rules, you take the LESSER of _____ and ____
depreciation taken; gain recognized
TF:Guaranteed payments are taxed on Form 1065 and flow through Schedule K1 as ordinary income
True
A partner’s adjusted basis of a partnership interest is the adjusted basis of the property contributed minus
the partner’s percentage multiplied by any liabilities assumed by other partners
To determine the tax basis of a partner’s basis in the partnership, you should subtract any cash received AND
subtract the adjusted basis of the property distributed
Unrealized receivables and appreciated inventory for a partner in a partnership are considered ____ assets
“hot”
In a complete liquidation of a partnership, a partner recognizes gain only to the extent that the MONEY received ____ that partner’s adjusted basis in the partnership immediately before the distribution
exceeds
Any gain resulting from the sale of a partner’s share of unrealized receivables and/or appreciated inventories is treated as _____ ____
ordinary income
TF: When unrealized receivables and appreciated property is present, the sale of a partnership’s interest gain is recognized to the extent of those items
True
Guaranteed payments are both an allowable deduction to the partnership AND ____ ___
separately stated on a partner’s K1
TF: Distributable net income is the minimum amount of income that a beneficiary has to include in income from a trust distribution
False; upper limit
The maximum amount that can be transferred pursuant to a death tax free is:
5,430,000
TF: Complex trusts distribute corpus
True
TF: An exemption of $300 is available for ___ trusts
simple
TF: The charitable contribution deduction on an estates fiduciary income tax return is allowable only if the decedent’s will specifically provides for the contribution
True
TF: An estate or trust is allowed a standard deduction in preparing the fiduciary income tax return
False; NOT allowed
TF: Trusts may use a fiscal year
FALSE; trusts must use a CALENDAR YEAR
The federal estate tax return is due ___ months after the decedent’s death
9
TF: Capital G/L are _____ and must remain with the estate or trust to be taxed at that level
principal
When the creator is treated as the owner of a trust, it is referred to as a ____ trust
grantor
The income distribution is the LESSER of the DNI or the _____ _____
actual distribution to the beneficiary
Inherited assets automatically receive ___ __ treatment
long term
Office furniture is ___ year property and use the half year convention
7
Computers are ____ year property and use the half year convention
5
Nonresidential real property is ___ year property and use the _____ convention
39; mid-month
TF: Section 179 deduction can be used to create a loss and when a loss is present
False
TF: MACRS depreciation basis carries from year to year
True
TF: Section 1250 recapture applies to both gains and losses
False; ONLY TO GAINS
Circular 230:
Prohibits a practitioner from endorsing or negotiating refund checks issued to the client
A ____ transaction is a tax avoidance transaction
listed
TF: IRS publications are considered primary authoritative sources
False; NOT considered primary
Under the Ultramares rule, the accountant is liable for negligence to _____
parties in privity
TF: A suit for common law fraud may succeed only if the accountant acted with scienter
True
Negligence has 4 elements: duty of care, breach (lack of due care), causality, and ____
injury
Constructive fraud does NOT require ____
intent; constructive fraud only requires reckless disregard for the truth or falsity
TF: A corporation registered under the 1934 Act must file quarterly reports and proxy solicitations by mgmt
True
TF: Intrastate security offerings are not exempt from the registration requirements of the Securities Act of 1933
False; they are
_____ provides an exception from the full registration requirements
Regulation A
Under Section 11, a plaintiff must prove a false stmt in the registration statement and nothing else
False; AND damages
TF: Municipal bonds are exempt from registration
True
TF: Under Section of the Securities Exchange Act of 1933, the plaintiff must prove that he/she acquired the stock
True
TF: A purchaser does NOT have the right to rescind under section 12 of the 1933 Act if the issuer fails to meet disclosure requirements
False; a purchaser has the right
____ is a defense against section 11 of the Securities Exchange Act of 1933
DUE DILIGENCE
TF: Scienter must be present for a plaintiff to succeed with Rule 10b5 under the Securities Exchange Act of 1934
True
Scienter is a requirement for ____ fraud
actual
Only monetary damages are available under section ___ of the ___Act
11; 1933
When is the statute of limitations for Section 11 of the Securities Exchange Act of 1933?
One year after discovery and three years from the offering date
TF: Regulation A only requires an offering statement
True
TF: Interest income does appear on Page 1 as part of ordinary income on the partnership tax return
False; does NOT; it’s only Schedule K
TF: Charitable contributions appear on page 1 of the partnership tax return
False; they appear on Schedule K
TF: Retirement plans for non partners are reported as part of ordinary business income not on Schedule K-1.
True
TF: Depreciation and the section 179 deduction are reported as part of ordinary business income not on Schedule K-1.
False; ONLY depreciation; section 179 IS reported on Schedule K1
TF: With a novation, the original parties are NOT released
False; one of the original parties is released
TF: The parol evidence rule does not bar the intro of prior written agreements
False; it does bar the intro of that evidence; it does NOT bar the subsequent oral agreements
___ ___ is when a person in a position of trust takes unfair advantage of the rltp such that the other party’s free will to contract is overcome
undue influence
An immaterial _____ mistake is not a defense to a contract
unilateral
TF: In a contract, consideration must be exchanged simultaneously by the parties
False; consideration must be legally sufficient
A mutual mistake of ___ ____ will make a contract voidable
material fact
TF: The Statute of Frauds requires the party to be charged to sign the agreement
True
The statute of frauds wants a contract of goods in excess of $500 to be in writing unless _____
S.W.A.P - specially mftg goods, written confirmation, admission in court, performance
What is a firm offer?
An offer that’s open with the absence of consideration
The Sales Article does not provide ____ damages
punitive
If the seller is NOT a merchant, risk of loss is with the _____
buyer upon tender of the goods
TF: Option contracts are revocable
False; NOT revocable
TF: With nonconforming goods, the risk of loss remains with the buyer
False; it remains with the seller; the seller makes a perfect tender which means the goods should be free from defect
When a seller ships nonconforming goods w/o notifying the buyer that nonconforming goods are being shipped, this is a __________
breach of contract; if the seller notifies the buyer, then it’s a counteroffer
The four elements of negligence are:
causation, damages, duty, and breach of duty
TF: Signing without recourse does NOT negate contract liability
False; DOES negate contract liability
A promissory note is a ____ party instrument
two
What type of endorsement would the following words imply? “For collection only” and “without recourse”
for collection: restrictive; without recourse: qualified
A certificate of deposit is a ____
promissory note; a.k.a promise to pay
Minority of the maker (infancy) is a ____ defense against holders in due course
real
When an endorser signs without recourse, he/she does what?
does NOT undertake the contract liability of an endorser
The defenses against a holder in due course are the following: fraud in the EXECUTION, adjudicated insanity, material alteration, infancy, illegality, duress, suretyship defenses, statute of limitations, and _____
discharge in bankruptcy
TF: A holder in due course has priority over a prior perfected security interest
True
Where a debtor has paid more than 60% of the price of consumer goods collateral and the creditor repossesses the collateral after default, the creditor must sell the collateral within ___ days unless the debtor agrees otherwise
90
A purchase money security interest has priority over all other security interests if it is perfected within ____ days of the debtor’s possession
20
TF: A purchase money security in CONSUMER goods is automatically perfected
True
The ___ agreement must be signed by the debtor
security
The 3 requirements for attachment are :
debtor has rights in collateral, value is given by creditor, and there’s an agreement of the parties
A security agreement need NOT include the ____
amount
After repossession and sale, the first thing paid is the:
expenses incurred to repossess and sale the collateral
If a person has fewer than ___ creditors any one or more of them with unsecured and undisputed claims that aggregate at least ___ more than the value of any collateral securing the claim may file the petition
12; 15,325
TF: Under Chapter 7 bankruptcy, a trustee is appointed
True; NOT ch 11
Distribution of the bankruptcy estate is: secured claims paid FIRST, then priority claims SECOND, and remaining assets are :
split proportionally among the UNSECURED CREDITORS who have timely filed a claim
TF: When there are fewer than 12 creditors, any one creditor who’s owed 15,325 in unsecured debt or more may file an involuntary petition in bankruptcy
True
TF: There is a requirement for liquidation in a reorganization
False; NO requirement
TF: Savings and loan corporations may participate in Chapter 11
False; may NOT
A party involuntarily petitioned into bankruptcy under Ch 7 with a dismiss of their case can recover: court costs and attorneys fees, compensatory damages, and ______
punitive damages
What companies may not go into bankruptcy voluntarily or involuntarily?
Insurance companies
TF: An individual engaged in the business of farming cannot be involuntarily petitioned into bankruptcy
True
Tax claims have an ___ priority
8th priority; tax claims are NOT treated as secured but they are paid before general creditors
If an instrument has a condition that is already satisfied it is not ____
negotiable; negotiability requires unconditional promises
Requirements for negotiability:
writing, signed, unconditional, money only, payable at definite time or on demand (acceleration and extension are OK), pay to order/bearer
Maker is associated with what financial instrument?
Note
A drawer is associated with what financial instrument?
Draft
TF: Restrictions on the face of a financial instrument destroys negotability
True
To be a HDC:
give value (no gifts), good faith, have a good instrument (no liens), negotiable
A drawer is ____ liable
secondarily
A maker is ____ liable
primarily
TF: A drawer is primarily liable after it accepts it
True
Endorsers are ___ liable
secondarily liable; only primarily liable if primary party does not provide payment and notice is given to the secondary party
A PMSI has priority over who?
Other creditors in the same collateral
Requirements for attachment include:
agreements (authenticated record signed by debtor or taking possession), rights in collateral, and value
Order of priority for debtor:
Buyers in ordinary course of business, PMSI, non-PMSI (you ARE perfected), unperfected (only attached), and debtor
A writ of attachment is:
an order by the court to SEIZE a person’s REAL or PERSONAL property
A writ of garnishment allows:
a creditor to collect money from a debtor’s wages
Convertible, municipal, official, and debenture - which of the following bonds are a type of surety bond?
OFFICIAL
For sureties: a promise to pay the debt or default of another must be evidenced by:
a writing signed by the surety
TF: A minor may serve as an agent
True
TF: An agent is NOT liable on contracts that the agent makes on the principal’s behalf whether the principal is disclosed or undisclosed
False; ONLY IF THE PRINCIPAL IS UNDISCLOSED WILL THE AGENT BE PERSONALLY LIABLE
FUTA taxes are paid by the employer and are deductible as ________
business expense; these are not withheld and not payable on ALL wages
Directors are treated as independent contractors so their income is subject to ______
self employment tax
The Taft-Hartley Act governs:
labor relations
Traveler’s checks between 3K and 10K trigger _____ requirements but not _____ requirements
record keeping; currency reporting
TF: Members of a limited liability company DO have management rights
True
TF: A limited liability company will not be dissolved upon death, withdrawal or bankruptcy of an owner
False; IT WILL DISSOLVE
A limited liability company is taxed like a ____
partnership
TF: A limited partnership has 1 general partner and 2 or more limited partners that has no personal liability
False; one or more of both general and limited partners; limited partners do NOT take part in management but still can inspect books and records
TF: Preemptive rights provide a shareholder with a right of first refusal to buy a share of newly issued shares sufficient to maintain the shareholder’s proportionate share of rights in any newly issued shares
True
A partnership or _______ can be formed without filing any documents with the state
joint venture
In a subchapter S corporation, the entity is taxed like a _____ but the shareholders have limited liability of the corporate form
partnership
TF: In a C corporation, the shareholders, directors and officers are not personally liable for the obligations of the corporation
True
TF: An S corporation can have a foreign shareholder
FALSE; CANNOT
For a LLC, what must be filed with the secretary of state?
articles of organization
TF: If a member in the LLC assigns his interest without the other members consent, the assignee is entitled to the assignor’s profits
True
TF: In a limited partnership, a general partner can be an unsecured creditor of the limited partnership
False; ONLY SECURED CREDITOR
A limited liability company can have ____ owner(s)
one
An unincorporated joint venture will be treated as a ________
partnership
When a taxpayer personally uses a home, then a rental loss is _________
disallowed
TF: Interest on US T- bonds is not taxable
False; it is included in gross income
Self employment tax and self employment health insurance are _________ from GI
adjustments; they are NOT deducted from self employment earnings
Is the payment of tax still April 15th when the return is extended?
Yes
What date determines the status of the taxpayer?
December 31; exception: if a spouse dies during the year, the taxpayer can file a joint return
TF: Exemptions are pro-rated
False; NOT prorated
Qualifying child mnemonic is CARES which stands for:
Close relative, Age Limit, Residency and filing requirements, Eliminate gross income test, and Support test changes
Qualifying relative mnemonic is SUPORT which stands for:
Support (over 50%), Under a specific amount of taxable gross income, Prevents dependent from filing an income tax return, Only citizens, Relative OR Taxpayer lives with individual for whole year
Which is taxable: unemployment compensation or workers compensation
unemployent compensation is TAXABLE
TF: Interest on a deferred payout for life insurance proceeds is not taxable
False; NOT taxable
Property settlements are or are not taxable
NOT
Renting a residence for less than ___ days will classify the residence as PERSONAL
15; so depreciation, utilities and repairs are NOT deductible
TF: Passive activity is any activity in which the TP does materially participate
False; does NOT
If a TP withdraws from a traditional IRS before the age of 59 1/2, there is a _____% penalty
10
A withdrawal from an IRA will not receive a penalty if it’s used for buying a first home. The max is ______
10,000
The “mom and pop” exception for passive activity losses has a _____ limited and a phase out between 100K and 150K
25,000
TF: When a TP uses a 1040 EZ, receiving a state income tax refund from the PY state income tax return is included in gross income
True; 1040 EZ does not let a TP itemize deduction
Roth distributions are ______ but earnings grow tax free
post tax
Distributions from a traditional IRS are or are not taxable
ARE TAXABLE
The four items NOT reduced by the itemized deduction phase out are:
gambling losses, medical expenses, investment int exp., and casualty and theft (non-business); GIMC; always allowed 100%
Individuals may deduct the FMV of property donated to charity up to _____ percent
30
TF:Self employed health insurance is an itemized deduction
True
Contributions of short term property are deductible at what?
The lower of cost or FMV
TF: Temporary living expenses and meals are included as deductible moving expenses
False NO LONGER INCLUDED
Which credit is refundable: the child and dependent care credit or the earned income credit?
earned income credit ONLY
TF: The child and dependent care credit is not refundable
True
The retirement savings contribution credit is a ______ credit
non-refundable
TF: Charity is an add-back for AMT purposes
False; NOT an add-back
TF: There is no penalty for underpayment of taxes
True
A TP may file a claim for refund within three years from the time the return was filed or ___ years from the time tax was paid
2
TF: Qualified dividends are includable in GI as ordinary dividends
True
Medical insurance premiums are deducted ____ AGI
FROM
A penalty on the premature withdrawal from a savings account is or is not deductible
IS deductible
TF: Health insurance premiums paid by a self employed individual are 100% deductible as an itemized deduction
False; 100% deductible to ARRIVE AT AGI
TF: Federal income taxes are deductible on the tax return
False; NOT deductible
Business interest expense on investments is deductible up to ________
investment income
For business property PARTIALLY destroyed, the loss is limited to the lesser of:
1: the decline in FMV or the adjusted basis immediately BEFORE the casualty
TF: Federal payroll is tax deductible
True
Personal service corporations, personal holding companies and ________ are NOT allowed to take the DRD deduction
personally taxed S corporations
TF: Brother sister corporations may not file a consolidated return
True
AMTI is $40K less ________
25% of minimum taxable income over $150,000
The tax rate on the alternative minimum taxable income is a flat ____ percent
20
The minimum tax credit includes a credit against future regular tax and it is carried forward_______
indefinitely; NOT carried back
The additional tax rate for accumulated earnings tax rate is ____ percent
20
When there is not enough current E&P to cover distributions, it is distributed on a ______ basis
pro rata
When there is not enough accumulated E&P to cover distributions, it is distributed in ____________
chronological order
When a corporation distributes assets, the equation for the shareholders is ______ - basis = taxable g/l
sale price
When a corporation SELLS assets, the equation for the shareholders is ______ - basis= taxable g/l
proceeds
A reorganization is a _____ transaction because it results in the continuation of a business in a modified form
NONTAXABLE
TF: Sec 1244 (worthless stock) allows an individual TP to deduct 100% of a capital gain against any form of income
True; 50K for single (100K if MFJ); any excess is treated as CAPITAL
TF: Section 1244 is available ONLY to original owners of the stock
True
TF: For an illegal business, business expenses other than the cost of merchandise and the cost of merchandise arae deductible
False; cost of merchandise is NOT deductible
TF: The foreign tax credit combines several nonrefundable tax credits
False; the general business credit
TF: In an S corporation, guaranteed payments do increase a shareholder’s basis
False; do NOT
TF: In a S corp., shareholders are taxed on distributed earnings
False; taxed WHEN EARNED
TF: When calculating a charitable contribution, you should not add in DRD
False; ADD IN DRD then multiply by 10%
A corporation will pay ______ tax in addition to its regular and alternative minimum taxes
personal holding company
TF: If a sole shareholder receives boot, then a G/L is recognized even if immediately after the transaction the shareholder owns at least 80%
True
A _______ is not deductible in the current year, but it does have a 3 yr carryback and 5 yr carryforward
net capital loss; takes on short term character
Under IRC Section 351, a shareholder does not recognize a G/L when ______% is owned immediately after the transaction
80
TF: Taxable interest and tax exempt interest increase the shareholder’s stock basis
True
TF: A built in gains tax only applies to a C corporation that elected to become a S corporation
True; an S corporation since incorporation does NOT apply
TF: Private foundations are not required to file annual information forms
False; they ARE REQUIRED
Premiums paid on key man life insurance proceeds are ______ on the books and ____________ on the return
recorded; NOT deducted
GAAP F/S record their assets and liabilities at their ______
Fair Market Value; REMEMBER: Financials use Fair Market Value
A corporation’s tax basis equals:
The contributing party’s property basis PLUS any cash paid to the contributor to complete the transaction
The failure to pay penalty percent is _____
0.5%
An artistic composition by the original artist is a ______ assets
NONCAPITAL
If an asset is held for exactly a year it is _________ term
SHORT
When selling an asset, if the selling price is higher than the donor’s basis use the _______
donor’s basis to determine the taxable gain
When selling an asset, if the selling price is lower than the donor’s basis use the ________
lower of FMV at the date of gift to determine the taxable gain
HIDE IT: gains and losses that are NOT taxed What does it stand for?
Homeowners exclusion, involuntary conversion, divorce property settlement, exchange of like kind, installment sale, and property capital and stock
Like kind does NOT include inventory, ____, securities, partnership interests and real property in different countries
stock
Losses that are NON-deductible: wRaP
wash sale losses, related party transactions, personal loss
TF: Losses on related party transactions are allowed
FALSE; disallowed
Related party transaction rules: if SP is higher than basis then use the _____; if lower than the basis, then use the _____
relative’s basis; purchase price
TF: Percentage depletion is allowed for tax purposes
False; NOT allowed; it is also an AMT preference item
Section 1231 losses are treated as ___losses
ordinary
Indirect costs incurred by reason of improvement must be ____
capitalized
TF: Syndication costs are deductible
False
An automobile for personal use is a _____ asset
capital
Real property not used in a trade or business is a _____ asset
capital
Property acquired by bequest or inheritance uses the ______ to determine the taxable gain. _____ is irrelevant
fair market value on date of death of decedent; basis
Real property is subject to the _____ convention
mid-month
Office furniture and a computer desk are ____ year property
7
Section 1245 requires that the ____ of depreciation taken or the _________ be recaptured
LESSER; gain recognized
If a partner recieves non-cash property, his basis is the lesser of __________ and the basis of the property
his/her basis in the partnership; basis in the property CANNOT be higher than the basis in the partnership interest
Any amount over the distributable net income is a nontaxable __________
return of capital
If it is year xx50, Form 1041 is due on _____
April 15, xx51
The income distribution deduction is the lesser of _______ or DNI
the actual amount distributed
A fiduciary must file a return on Form 1041 if the estate has gross income of $____ or more for the tax year and if NONE of the beneficiaries are nonresident aliens
600
TF: An estate is required to have a calendar year
False; an estate can have the same accounting period as the decedent
Form 706 is filed _____ months after the decedent’s death
9
The two words that are associated with fraud are:
willful and reckless
Reasonable basis is ______% chance of a tax position to be upheld
20
Substantial authority is greater than ______% but less than _____%
33; 50
Which penalty is higher: the penalty for negligence or fraud
fraud; it’s the higher of $5000 (as opposed to $1000) or 50% of the income received by the tax return preparer
A practitioner can charge a ______ fee but not a _____ fee
unconscionable; contingent
TF: A state board has to prove beyond a reasonable doubt that a CPA performed misconduct punishable by the state board
False; does NOT
Without a hearing, the AICPA can perform which action?
Suspend membership
What civil penalty can an SEC impose?
Suspend or permanently revoke the right to practice before the SEC, which includes the right to sign tax returns
SEC may impose fines of not more than $_______ ($______ for firms)
100K, 500K
When a CPA makes an error when calculating a client’s tax return, a penalty _______ imposed
is NOT
What does Circular 230 prohibit?
A practitioner from endorsing or negotiating refund checks issued to the client
The CPA must retain a copy of the completed return for ______ years after the close of the return period
3
A listed transaction is a ___ ___ transaction
tax avoidance
The failture to file a tax return is an example of ____ _____
criminal conviction; NOT outside of accounting services
Tax Court Cases or IRS publications: which is NOT considered a primary authoritative source
IRS Publications
TF: There is a penalty for failure to disclose a conflict of interest
False
Who assumes responsibility for internal controls?
CEO and CFO
TF: CEO and CFO only report management fraud
False; they report ANY fraud
CEO and CFO report ____ ____ in the design or operation of internal controls
significant deficiencies
TF: Issuers are prohibited from making personal loan to officers and directors even in the ordinary course of business
False; ordinary course of business is fine
_______ is responsible for maintaining and establishing internal controls
management; not the auditor
Officers and directors owning more than _____ % are required to report transactions with an issuer
10
Most tax law originates in the _____ _____ _____ _____ _____
house ways and means committee
The ____ _____ _____ resolves differences between the senate and the house
joint conference committee; both the house and the senate must approve the compromised bill
A veto can be overridden by a ______ vote from BOTH the house and the senate
2/3
Form ______ waives a person’s right to petition the court or receive any further statutory notices
870
The ____ _____ handles situation when the TP and the IRS cannot reach an agreement
Federal Court; either the IRS or the TP can initiate the process
What types of cases does the US Tax Court hear?
Only federal tax cases; TP does NOT have to pay disputed tax in full to petition
In US Tax Court, there is/are _______ judge(s)
1; there is NO jury trial
TF: In US district court, a jury trial is required
False; NOT required; must pay disputed tax in full; still one judge
There are ___ judges for the US Court of Federal Claims
16
The US Court of Federal Claims is a ______ court
nationwide
US Tax Court and the US District Court follow the appeals court decisions from the ____ _____ ____ ____
US Court of Appeals - there are 3 judges present; NO jury
The US Tax court and the US District Court go to the ______ appeals courts
geographic
Failure to file penalty is ____ % per month
5; max is 25%
Failure to pay penalty is ____% per month
0.5; max is 25% of the unpaid tax
Negligence penalty is ____% of the understatement of tax
20
Defense against negligence:
reasonable basis
Under a reasonable basis defense, most penalties will be avoided when the position is _____
disclosed
Reasonable basis has a ______% chance of being upheld
20
If it’s NOT a tax shelter and it is not disclosed ________ a position will be upheld
substantial authority (> 33%
Tort includes: negligence, fraud or ____ _____
constructive fraud
Failure to notify client of a known internal control weakness is an example of:
negligence
Under the majority rule, the CPA has a duty to a limited forseeable class of persons that includes _____ and _____
lenders; investors
The minority rule applies to those in privity of contract with the CPA and ____ ____ ____ _____
NAMED intended third party beneficiaries
Elements of actual fraud (MAIDS): misrepresentation of material fact, _____, actual and justifiable reliance by plaintiff on misrepresentation, intent to induce plaintiff’s reliance on misrepresentation, and _____
scienter (knowing of false misrepresentations); damages
Gross negligence is the same as ____ fraud except one is acting recklessly
actual
Defense of fraud:
lack of scienter/good faith; fraud opens the door to be sued by ANYONE
Defense for negligence:
due diligence
Under Section 11 of the 1933 Act, a plaintiff only has to prove LAM :
suffered loss, acquired the security, and the F/S contained a material misstatement
Rule 10b-5 has the same rules as Section 11 with the addition of ____ and reliance on misrepresentation
scienter
Reckless departure from due care constitutes ____ _____
gross negligence; a.k.a constructive fraud which leads to liability to ALL plaintiffs
An action for gross negligence requires BOTH negligence and __________________
reliance on a misstatement
What are the 4 elements of negligence:
duty of care, breach of duty of care, causality, and injury
When you prepare ONE registration statement for ALL securities that will be offered in the future, it is a ______registration
shelf; with a shelf registration information must be updated continuously
NO sales activity allowed ___ days before registration
30
Tombstone ads specify:
the security, its price, and who will execute orders
Preliminary (red herring) prospectuses are/are not final
are NOT
After registration, there is a ____ day waiting period in the meantime you can have oral offers to sell
20
Exemptions from 1933 Act: BRINGS
Banks, railroads, insurance companies, not for profit organizations, state and local government, short term commercial paper (maturity date of 9 months or LESS)
Regulati D securities must be held for ____ years before resale
2; SEC must be notified within 15 days after sale
Under Rule 505, _____ or fewer unaccredited investors are allowed
35
An accredit investor has $______ in net worth and $200K in annual income
1 million
TF: General advertising is allowed for Rules 504 -506
False; NOT rule 505; sometimes for 504 and 506
Unlimited dollar amount for Rule ____
506
$1 million dollar amount for Rule ____
504
$5 million dollar amount for Rule _____
505
Section 12 and 17 deal with antifraud and apply to _______securities
unregistered
Must register under 1934 ACT if traded on a national exhange OR companies have more than $_____ in assets and at least 2K shareholders or _____ shareholders who are not accredited
10; 500
Short swing profits are securities that are sold within a _____ month period; there is absolute liability on this transaction
6
Insider trading =
fraud; applicable to material, non-public information
Express contracts can be ___ or ____
oral or written
Common law applies to R.I.S.E which means
Real estate, insurance companies, services, and employment contracts
UCC applies to _____
sale of goods
Legally enforceable agreement requirements:
offers and acceptance, exchange of consideration, and lack of defenses
If you don’t have knowledge of the reward, you _____ accept it
CANNOT
3 ways for rejection:
revoke, reject and automatic
An offer is not eligible if it is _____ before it is accepted
revoked
TF: You can revoke an offer even if you promise to keep it open
True!
If an acceptance is invalid, it’s a ______
counteroffer
Under the UCC, there is NO _____ rule
mirror; means that there is no more or no less; anything other than is a counteroffer
Consideration must not have _____ value
monetary
A gift is NOT binding unless there is _____ _____
detrimental reliance
Fraud in the execution:_____ Fraud in the inducement: ______
void; voidable
Threatening a person’s social or economic status makes a contract _______
voidable; a threat to harm a person physically makes a contract VOID
A promise to not compete must be acceptable in duration and reasonable for _________ location
geographic
Immaterial unilateral mistakes are _____
valid
Statue of frauds: MY LEGS - ALL REQUIRE WRITING
Marriage; multiYEAR contracts; land; contracts by Executors, sale of Goods equal to or greater than $500 (oral if completed within a year), contracts as Surety (pay debt of another)
Accord and satisfaction: new ______ same _______
agreement; parties
TF: No contradictions allowed under the parol evidence rule
True
Anticipatory repudiation is:
the lack of performance but notice was given beforehand; there are 3 options- cancel, consider it as a breach and sue immediately OR wait until the time and then sue
An individual can receive specific performance or _____ damages from a breach of a specific performance contract but not both
compensatory
Punitive damages are ONLY available for _____
fraud
TF: Securities issued by not for profit organizations are not exempt from registration
False; ARE
_______ mistake is a defense nonmistaken party knew or should have known of the mistake
Unilateral
Common law defense of fraud requires _______
scienter (intent to deceive)
If an assignee releases the obligor, then the ______is released too
assignor
A mutual mistake of a material fact will make a contract _____ at the option of the adversely affected party
voidable
A specific performance court order applies to unique or _____rare property such as patents
rare
TF: A promise to pay another’s debt does not have to be in writing
False; DOES have to be
There is an obligation of ____ ____ under the UCC
good faith
A merchant’s firm offer is open for _____ days
90 days; 3 months
To be a firm offers, the individual must be a merchant, the offer must be ______ and _______ by the merchant and the offer should have assurances that it will stay open for a certain period of time
in writing ; signed
Promise to pay is ______ where is a promise to perofrm is unilateral
bilateral
Under the UCC, ____ changes are allowed
minor; any material changes constitute a counteroffer
The exception to MYLEGS is SWAP - specially mftg goods, written confirmation rule (reject in 10 days), admission of contract to court, and ________
performance- contracts that have already been peformed
In a _________ case, the buyer will pick up the goods at the sellers place of business
noncarrier
For a _______seller, risk of loss passes to buyer at tender of delivery of goods
NONmerchant
When the seller ships the wrong items, the risk of loss ________
remains with the seller
If there is a right to return, the risk of loss _______
passes to the buyer until they return the goods; same for consignment sales
TF: When the goods have been identified for a buyer, the buyer may not insure the goods
False; they CAN
TF: Risk of loss is dictated ny ownership
False; title means ownership
If the buyer rejects, the title_____
reverts back to seller
The UCC requires _____ tender of goods
perfect
Implied warranties:
are there by law; three - merchantability, fitness for a particular purpose, title
An implied warranty of title _____ be disclaimed; can be disclaimed specifically or _______
can; by circumstances
Implied warranty of merchantibility: implicitly warranted _______
by law; this warranty ONLY applies to dealers (merchant); can be disclaimed by a dealer
Implied warranty for particular purpose ____ be disclaimed
CAN; similar to merchantability
If you are injured (not even in privity of contract), you can sue by breach of warranty or ____
tort
Two types of torts: intentional and _____
negligence
For strict liability, you must say that the product is defective, the seller was a dealer, and _____
the product caused the injury
Strict liability is liability without______
fault
TF: Punitive damages is not available for sales
True
_____ ____ is used to recover damages for unique items
specific performance
Replevin is used to recover goods that are _______ in possession if the seller
wrongfully
The two exceptions to a true owner recovering goods from third parties are :
entrusting (entrust goods to a merchant who then sells to a purchaser) ; voidable title (defrauder sells goods to a purchaser)
Risk of loss is dictated by _________ _______
shipping terms
An implied warranty of merchantability may be disclaimed by the use of an _____ _______that mentions merchantability
oral statement
Copyrights are good for the author’s life PLUS ___________
70 years
Patents have protection under federal law for ______ years
20
Patents must be _____, useful , and NOT obvious to a person skilled in the area
novel
A certificate of deposit is a ______
promise to pay
A check is payable ___ ____
on demand; the drawee must also BE A BANK
The back of instrument ____ destroy negotiability
CANNOT
Requirements for negotiability:
signed (by maker for a note or drawer for a draft), unconditional, not governed by other agreements, no express conditions, even if satisfied
TF: Payment out of a particular source of funds and acceleration of the payment does NOT destroy negotiabiity
True
Checks ________ have to be dated
DON’T
Endorsements have 3 qualities:
special/ blank, qualified/unqualified, restrictive
Special endorsements:
signed over to a particular person
TF: Bearer paper does not require a signature
True
Requirements for negotiability ______ required for endorsements
ISN’T; endorsements are on the back where the requirements do not apply
Blank endorsements result in _____ paper
bearer
If a signature is forged or an necessary endorsement is missing, there _________ a HDC - subject to all defenses
ISN’T
If a drawer or maker’s signature is forged, then there is _______ HDC
A; there is NOT a break in the chain; the maker or drawer is subject to real defenses
Endorsers are _____ liable if the primary party defaults
secondarily
“Without recourse” is a ______ endorsement
qualified; not secondarily liable; exception to rule for primary party defaulting; still have warranty liability
Restrictive endorsements _______ prevent further negotiation
DON’T
Restrictive endorsements includes words such as:
ONLY
To be an HDC you must:
give value, act in good faith, believe instrument is good (be without notice), know instrument is negotiable; IF ANY RIGHTS ARE MISSING YOU GET THE SAME RIGHTS AS TRANSFEROR
An executory promise does or does not count as giving value
does NOT
Shelter doctrine: _____ receives instrument from HDC
non-HDC
Real defense:
maker/drawer does NOT have to pay any one
REAL defenses:
F - fraud in the execution AND forgery A - adjudicated insane AND altered I - infancy AND illegal D - duress physically AND bankruptcy S - surety, statute of limitations
Anyone with the rights of an HDC wins against ______ defenses
personal; personal defenses are not apart of the FAIDS mnemonic
2 party promise to pay (NOTE) ______ pays
the maker (primary liable); the endorser is secondarily liable
The primary party on a draft or check is the _____
drawee (primary liable); the drawer and endorsers are secondarily liable; Drawer is secondarily liable AFTER acceptance; Drawee is liable AFTER signing
Oral stop pymt is good for ____ days; written is good for ____ months
14; 6
The forger is _____ even though the negotiability is intact
liable; if the forger is not to be found; the bank (the drawee) is next in liability
Imposter rule: _______ is liable
maker/drawer because they’re negligent
Article 9 applies to ____ and _____
personal property or fixtures
A PMSI has ______ over all other types of security interests
priority
There is no PMSI in property that the person ______________
already owns!
3 requisites for attachments:
debtor signs an authenticated document OR creditor takes possession, value must be given the secured party in exchange for security interest, debtor must have rights in the collateral
TF: A creditor may attach to property that the debtor will acquire in the future
True
Five methods of perfection:
filing, taking possession of collateral, control, automatic perfection and temporary perfection
You cannot ____ until you attach
perfect
A financing statements covers ____ years
5
TF: An oral agreement for attachment is NOT valid
False; IT IS
Two types of goods that are automatically pefected:
PMSI in consumer goods and small scale assignment of accounts
If a debtor moves to another state, the perfection in the prior state is still valid for ______ ____
four months
Highest priority creditors to lowest priority are:
buyers in the ordinary course of business, perfected PMSI, perfected (NON PMSI), unperfected (attach only), the debtor (entitled to any surplus)
Although a PMSI in consumer goods does not have to file BUT should, if a person buys the consumer goods from the debtor they _________ have the goods repossessed
will NOT; this is known as the garage sale rule
What is the rule for a PMSI in equipment?
It has priority over other perfected security interests if filed anytime within 20 days of the debtor getting possession of the collateral; date of possession will be the day that the creditor took possession NOT the day the interest was perfected
There is no 20 day grace period for a PMSI in ______
inventory
For two non-PMSI’s, the ____________ wins
first to file OR perfect
A __________ will have priority if attached before the security interest was perfected
judicial lien
Priority of proceeds in an auction:
pay expenses of repossession and sale, pay creditors w/ a security interest in order of priority, debtor
If proceeds of an auction are insufficient to cover the repossession and sale, the secured party may ______
sue the debtor for deficiency
A secured party may keep the collateral as satisfaction of debt HOWEVER if __________ is paid then the secured party must sell within __________after repossession
60% ; 90 days
Chapter 7 ___________ a ________ is appointed
liquidation; trustee
Chapter 13:
repay debts to creditors over a 3 yr minimum period to a 5 yr maximum period
Chapter 11: reorganization with ____________
NO liquidation
A chapter 7 case may be converted to a Chapter 13 case if chapter 7 is deemed to be _________
abusive
Chapter 7 means test:
(average monthly income - allowed expenses) * 60; if less than 7,475 - can remain chapter 7; if above 12,475. switch to chapter 13 or dismiss entirely
Any individual, partnership or corp may file for chapter 7 or 11 but NO________
railroads, savings companies, insurance companies, banks, or small investment companies
Credit counseling must be completed _____ days before filing the bankruptcy petition
180
Chapter 7 and 13 must take a _____ ____ course before debts are discharged
financial management
Chapters ___ and ____ have trustees
7 ; 13
If between the thresholds for chapter 7 and 13, there’s a 25% test which is:
25% of your non-priority claims; if it is, you will have chapter 13 or dismissed!
TF: Debt relief agencies can encourage you to rack up more debt before filing bankruptcy
False
Chapter 7 and 11 can both be voluntary and ______
involuntary
Automatic stay:
orderly disposition of the debtor’s assets; STOPS ALMOST ALL COLLECTION EFFORTS does not include child support or criminal court
TF: A balance sheet is needed in bankruptcy court
False; list of assets and liabilities
Which chapter is voluntary only?
Chapter 13
Does a debtor need to be insolvent for chapter 7 and 13?
No
_______ is the minimum amount for involuntary petition for unsecured
$15,325
When there’s __________ 12 creditors, at least one unsecured creditor can petition
less than
When there _________ 12 creditors, at least three unsecured creditors must file a peition
more than
If creditors wrongfully file a petition, they are _______
liable; if in bad faith they could pay punitive damages
ALL property including its _______ is included when filing bankruptcy
income
DII are included that can be taken after the filing:
divorce, insurance, inheritance
Property that’s protected after filing for bankruptcy:
earnings after filing, education savings, necessities unless there’s a specific lien, mortgage, or lien on the necessities
Veterans benefits, child support, health aids ________ taken during bankruptcy
are NOT
No transfers are allowed within _______ years from the date of filing when a debtor is insolvent
2
90 day/1 yr rule for debtors is:
courts can take back any property transferred preferentially; they can look back 90 days or one year; preference creditor - will get more than they would have in bankruptcy court
Acceleration or ______is considered a preference
prepayment
A payment in full to a creditor _________ a preference
is NOT; they were going to get paid in full anyhow
WAFTED - debts that will never go away
taxes due in past 3 years, fraud, debts that are undisclosed, embezzlement and educational loans, alimony, willful malicious injury (DUI), fines and penalties
______ debts will go away in bankruptcy
MOST; not all
Order in bankruptcy court:
Secured creditors (up to value of collateral; if more than collateral they go to back of the line), priority, general
Priority creditor order: SAG WEG CTI
support, administrative expenses, gap period creditors ( 20 days usually), wages (up to 12,475-wages earned within past 180 days), employee benefits (reduced by amount allocated to wages), grain farmers, consumer deposits ( up to 2,775), tax claims, injury (personal)
Chapter 11: how many creditors/shareholders are needed?
The 7 largest for individual or corporation
In chapter 11, the debtor can come up with a plan within the first _______ days
120; it must then be approved by the committees but not unanimously (only 2/3)
The ____ is the last party to confirm a debtor’s plan in chapter 11 and it then becomes binding to everyone even those that didn’t vote
court
Chapter 15: there’s a _____ representative in the US bankruptcy court
foreign
Chapter 9 is the __________
municipal adjustment for debt (ex. Detroit)
The creditor’s committee is made up of ________ creditors
unsecured
TF: An automatic stay is NOT available under Chapter 15
False; it is
A foreign entity may also file under Chapters ______ and ______
7 ; 11
To properly perfect PMSI in inventory, creditor must give notice to ___________
prior secured creditors and must file prior to delivery to get ahead of prior perfections
The 3 parties of a suretyship transaction:
creditor, principal (debtor or obligor), surety
A true surety is ______ liable
primarily; along with the debtor; distinguish from a guarantor that is secondarily liable
A suretyship must be evidenced by ______
writing
Any variation of the surety’s risk _____________
releases them from liability
Gratuitious surety is NOT ______
compensated
A noncompensated surety after a loan is made is not ______
binding; distinguish from a compensated surety which does not care about the timing
A ________ change in a compensated surety’s risk releases the surety
material
When the debtor defaults in a suretyship transaction, a creditor may :
demand payment from surety and/ or debtor and go after collateral if there is any
Exoneration:
the principal gets a court order to compel the debtor to pay the creditor ( BEFORE the surety pays)
Two actions for surety after he/she pays:
subrogation and indemnification (reimbursement)
If a co-surety is discharged in bankruptcy, then the co-surety is ________ from the pro-rata calculation
excluded
Defenses of sureties: CPRS
Creditor acted in bad faith (duress, defrauded, illegality), payment and tender of payment, release of principal debtor, surety’s incapacity or bankruptcy
A compensated surety is partially released when :
loss of security (discharge the surety in the amount of the value of the security released) and release of co-surety (remaining surety is discharged by the amount that he/she could have collected from the released co-surety)
Non-defenses for a surety:
debtor’s fraud or duress upon surety, incapacity of principal (debtor) nor is the debtor being a minor a defense, bankruptcy of principal
Creditor’s composition:
a debtor makes an agreement with at least two creditors to pay less than their full claims in full sastisfaction of their debt
A lien is on property in the hands of ________ whereas garnishment is in the hands of _________
the debtor; a third party
A mechanic or artisan that works on a car has a ______ lien
possessory; can possess the car and should be paid up to the amount of the work done on the car
Fraudulent conveyance:
transfer property to delay or defraud the creditors; creditors MUST go to court to repossess property fraudulently conveyed
Fair Debt Collection Practices Act prohibits:
calling third party to indirectly pressure debtor to pay; call at unusual times, call if debtor is represented by an attorney, make false or misleading claims
A collection agency under the FDCPA may:
call to see about a debtor’s whereabouts BUT may not disclose that they’re a collection agency and that the debtor’s owes them money
A debtor may receive a ______ damage award for a collection agency’s misconduct
$1,000
Discharge of the principal debtor __________discharge the cosigner of a loan
does NOT
A writ of attachment is:
an order by the court to a sheriff to seize a person’s property
Agents can be ______
minors
Agents do not require _____ agreements UNLESS _______ or _______
written contracts; buying or selling land; cannot perform within a year
The _____ is required to sign the power of attorney
principal
Duties of agent to principal:
duty of loyalty, duty of obedience, duty of reasonable care, duty to account (no commingling of property)
A subagent has a duty to _________
principal and agent
Principal remedies:
tort damages (negligent or intentional breach of duty), contract damages (breach terms of agreement), recovery of secret profits, principal may withhold compensation if agent breached duty
In a principal - agent relationship either party has the power to terminate but not necessarily the ____ to terminate
right
TF: A principal cannot terminate an agency coupled with an interest
True
Agency power can arise through:
actual authority (POWER AND RIGHT), apparent authority/estoppel, or ratification
An agent _______ have implied authority to borrow money on the principal’s behalf
does NOT
TERMINATION of actual authority occurs when:
death of principal or agent, discharge in bankruptcy of principal, incapacity of principal, failure to acquire a necessary license
The principal must have performed some of action or lack thereof to give an agent _________ autority
apparent; the mere representation by the agent as a agent is not sufficient
Secret limiting instructions only limits ______ authority but NOT ______ authority
actual; apparent - must give notice
A general agent has a continuity of services whereas a _____ agent does not
special
_____ notice must be given to destroy apparent authority to old customers and ____ notice must be given to new customers
actual; constructive
Termination of apparent authority by law requires _______ notice
NO; actual and apparent are destroyed by law
Ratification occurs UNLESS:
the performance would be illegal, the third party withdraws before ratification, or there’s a material change of circumstance; PRINCIPAL MUST BE DISCLOSED TO RATIFY
______ principal is ONLY liable to third party if the agent has ______ authority
undisclosed; actual
If there’s a disclosed principal, the agent ______ held liable
is NOT
TF: Partially disclosed principal and undisclosed principals holds the principal liable
FALSE; the agent is liable
TF: A third party can hold either the principal or agent liable if the agent is partially disclosed or undisclosed
True
No ______ authority with an undisclosed principal and NO ______
apparent ; ratifying
An undisclosed principal has ______effect on the agent’s actual authority
NO
Principal _____liable for torts committed by the agent EXCEPT for _______
is NOT; employers - if employee commits tort within the scope of employment
The employer is liable for an employee’s _____ but not an _________
negligence; intentional tort
A principal only needs to ratify _____ acts and when the principal is _______
unauthorized; disclosed
Actual authority granted in writing ________ need to be rescinded in writing
does NOT
Limited Liability Company files a __________ to form
articles of organization
Limited Liability Partnership files a ____________ to form
statement of qualification
A ________is for a single transaction or a series of transactions related to a project
joint venture
Actions that need unanimous consent in a partnership:
admitting new partners, changing partnership agmt, confessing a judgment, fundamental change in partnership business, assigning partnership property to others
Dissolution of a partnership can be done by ________
just one partner; can sue by breach of contract
There is no apparent authority to:
sell a partnership’s goodwill or confess a judgment against the partnership
A partner’s creditor ________ go after the partnership’s property
CANNOT
An assignment of the partner’s profits and surplus does not make the assignee a ______
partner; cannot attend meeting, inspect books and records, vote, etc.
Creditors may attach a partner’s ________ NOT ______
interest; property
In a general partnership, partners are ___________ liable
joint and severally
When a partner dies, the partner’s right to profits goes to ______
the surviving partner
_______is applicable to partners, meaning that each partner must pay one partner their share of debt
Contribution
GP is the same as an LLP for ___________allocation
Profit or Loss
Dissociation occurs when a partner:
gives notice of withdrawal, dies, becomes bankrupt, or is expelled
Apparent authority for a dissociated partner__________ until notice is given
continues
Dissociated partner remains ______ for debts _____to dissociation
liable; PRIOR
New debts are factored in up to two years for a dissociated partner unless__________
notice was given
A partnership has _____duration
LIMITED
A partnership may continue after dissolution until it’s ________
wound up
Partnership liabilities are paid in the following order:
creditors (including partners that are creditors) then partners - the return to partner is the return of capital
A limited liability partnership __________ to limit liability
must file
Under a LLP, a partner is liable for _________ and those________
own negligence; under direct control
Under an LLP, NOT liable for :
debts and contractual obligations
You can lose your investment in a GP and _____
LLP
A limited partnership has at least one ______
general partner
In a LP, limited partners do NOT ___________
participate in day to day management
A limited partner is like a ________
shareholder; they contribute capital and are liable up to their investmsnet
A general partner can also be a _________ but will still have unlimited liiability
limited partner
A limited partner who participates in control of the business is liable to any creditor who:
reasonably believes he/she is a general partner
Limited partners can vote on _____________
extraordinary matters
In a LP, a new partner is added with consent from _______
all partners
A limited partner _________ owe a fiduciary duty to the partnership
does NOT
When a general partner dies the partnership is _________
dissolved
LP distributions of assets:
creditors (incl partners that are creditors), former partners, current partners (return of contribution)
In a LP, if there is a loss after distribution of assets the _________
general partner ONLY is liable
An LLC is a hybrid of:
a corporation and a partnership
In an LLC, profit and loss________ and there is _________liability
flow through, limited
TF: Two people are needed to form an LLC
False; ONLY ONE PERSON
___________ members can participate in mgmt
ALL
In a LLC, voting strength and P/L allocations is __________ to contributions
proportional; SAME AS CORPORATION AND LP FOR p/l ALLOCATION; CORPORATION IS SIMILAR WITH VOTING STRENGTH
In a LLC, ______ consent is needed to add a new partner
unanimous
TF: The corporation is personally liable for the debts of the business
True
An LLC has _______
double taxation
An LLC has the option of being a ________ or ________
C corporation or S corporation
S corporations do not allow ______ shareholders
foreign; no more than 100 shareholders either
_____ class(es) of stock are allowed for S corporations
ONE
In a small closely held LLC, the shareholders can ________
run the corporation
A corporation has _______ life and is generally transferrable
perpetual
Promoters of a corporation are NOT _____
agents; they ARE personally bound on the contracts they make
Items in article of incorporation include
name of corp, name and address of registered agent, name and addresses of incorporators, number of shares authorized to be issued// one or more classes of shares must have unlimited voting rights
Ultra Vires Act:
A director or officers performs an action outside of its narrow purpose clause; they are liable if authorized
Bylaws are:
the rules for running the corporation; NOT required to be filed
Shareholders, officers, directors may be liable (piercing corporate veil) if :
there’s commingling of funds, fraud on existing creditors, or undercapitalized at the formation
Financing of the LLC can come from _____ and ______
stocks; bonds
In an LLC, if a shareholder has one share, he/she has ______ vote
ONE; unless there is cumulative voting in the articles of bylaws which allows one vote for each director position being filled and the shareholder may cast the votes in any way
Once a distribution is declared by the B.O.D, the shareholders are considered:
unsecured creditors
TF: Dividends can be paid to common shareholders before paying cumulative dividends
FALSE; must pay cumulative dividends to preferred stockholders BEFORE common shareholders
Stock dividends are issued from a corporation’s own _______________
authorized but UNISSUED shares
Stock dividends decrease _____ and increase ______ causing no change in _______
retained earnings; paid in capital; equity
Shareholders have a right to inspection for a _____ purpose
PROPER
Preemptive right:
current S/H have right to purchase additional shares in order to maintain current voting strength
S/H can dissent against the following fundamental changes: DAMS
Dissolution, Amended articles of incorporation, Merger, consolidation or share exchange, Sale of substantially all of the corporation’s assets in the ordinary course of business; if the S/H lose the vote they can be bought out at FMV
Derivative action:
represents the bet interests of the corporation- enforces rights of the corporation; can even sue the directors
Direct action:
S/H sues the corporation
Directors may NOT vote by _____
proxy; there must be a quorum (majority) present and the majority must approve
Directors are NOT individual _______, they act as a group
agents
Directors may:
fix mgmt compensation, repeal bylaws, initiate fundamental changes, adopt amendments
Duty of loyalty prohibits:
directors from competing with the corporation; a conflict of interest is upheld if there’s full disclosure and approval by the majority of directors AND the transaction was fair and reasonable to the corporation
A corporation can indemnify a director for expenses from a lawsuit unless:
the director acted in bad fatih
Officers of a corporation are ___________ and run the day to day operations
individual agents
Officers are selected by the ________
directors; directors have the power to terminate officers
Officers may also be _______
directors; there is some limitation
Fundamental changes require _______ and ______ but the approval will NOT be _________
board of director; shareholder; unanimous but majority approval is required
Fundamental changes must be approved by the holders of __________ shares in the corporation
outstanding
In a share exchange, one corporation buys all of the shares of another corporation but both _____________
continue to exist as separate entities
In a share exchange, only the corporation that is ________ must follow the fundamental change procedure (board approval, notification, shareholder approval, filing)
acquired in shares
A _____merger does not require approval from the board or shareholders
short form; 90% of subsidiary is owned; mail a copy of the merger plan to each shareholder whose right was NOT waived
For ____ purposes, a fiscal year end must be approved by the IRS
tax
An LLP ________ pay taxes on its earnings
does NOT
An intial corporation’s bylaws may be adopted by either the _____ or ______
incorporators; B.O.D.
TF: A LLC is dissolved on the death, withdrawal or bankruptcy of a member
True
Amending the articles of incorporation require affirmation from the _______
shareholders
A _____is a contractual right to purchase stock
warrant
A joint venture does NOT require:
filing any documents with the state
TF: There is a requirement for a general partnership to file with the state and obtain state approval
False
Shareholders have the right to elect and remove _______
directors
An S corporation is taxed like a ________ but the owners still enjoy limited liability
partnership
A limited partner will be considered a ________ partner with ______ personal liability only to those that the limited partner transacts with
general ; full
When the partnership agmt is silent, a parent may dissociate ___________
at any time
The default treament of an LLC is a _________
partnership
TF: Inactive partners have the right to inspect partnership books and records
True
A JV is similar to a ______ _______
general partnership
A _____ can be voluntarily dissolved by filing a dissolution document with the state
corporation
FICA includes __________ individuals
self employed
If the employer fails to withhold the employee portion of FICA, they are liable to pay but can __________
request reimbursement
If the employer willingly pays the employee portion of FICA, the employer can _________ the portion and the employee is ________ on the portion
deduct; taxed - counted as income
FICA tax for self employed individuals is based on ______ income
net over $400; individual pays both employee and employer portion
FICA tax for employees sis based on ___________
gross income
Under FICA, you can get more than _______
contributed
FUTA _______self employed individuals
excludes
FUTA is paid for employee with quarterly payrolls of ______ or a person employed ____ weeks in a year
$1500; 20 FUTA is paid by employer ONLY as an ordinary business expense
Self employment deems an employer liable if the injury occurred while acting _____________
in the scope of employment
TF: An employee’s negligence or assumption of the risk will bar recovery
False; will NOT bar recovery; HOWEVER fighting, intoxication and self inflicted wounds will bar recovery
Action against employer limited to ______________
worker’s compensation recovery
Exceptions to worker’s compensation:
employee may sue if employer intentionally injured them OR they can sue third parties and receive worker’s compensation benefits// if successful, the insurance is entitled to any reimbursement for duplication of benefits paid
Worker’s compensation includes loss _______
of income
Title 7 of the Civil Rights Act prohibits discrimination based on:
race, sex, religion, color or national origin; complains are heard by the Equal Employment Opportunity Commission
The basic defenses of discrimination:
seniority system; professionally developed ability; and occupational qualification
Equal Pay Act gives _______ if violated
backpay
Age Discrimination Act protects people over ________ and applies to employers with ____ or more workers
40; 20
Age Discrimination prohibits:
mandatory retirement age
Both _______ and ________ discrimination for age is prohibited
intentional; unintentional
Americans with Disabilities Act prohibits discrimination:
against individuals with physical or mental disabilities; employer must have more than 15 employees
OSHA applies all businesses affecting _________ commerce
interstate
OSHA can fine can employer _____ per day and civil penalties up to ________per willful or repeated violation
$1000; $10,00; OSHA also has criminal penalties
Fair Labor Standards Act sets an overtime rate of :
1.5 times the hourly rate for work weeks of more than 40 hours
FLSA prohibits hiring children under the age of ___________
14 UNLESS they’re newspaper deliverers or child actors
Child workers are exempt from ______ and ____provisions as well as white collar workers (i.e. accountants)
minimum wage; overtime // Cab drivers are exempt from minimum wage provisions
National Labor Relations Act gives workers the right to :
bargain collectively for wages and other terms of employment
NLRA prohibits employers from:
interfering with employees attempting to unionize or discriminate against those with labor union membership
Labor Management Relations Act:
prohibits labor unions from charging excessive union fees, forcing employers to pay for unperformed services or calling for an improper strike
Employee Retirement Income Security Act:
protects retirement plan participants by establishing rules for management and participation in the retirement plans
Qualified pension plans receive _____________
special tax treament
The Consolidated Omnibus Budget Reconciliation Act allows individuals to continue:
the health insurance coverage they had after employment by paying up to 102 percent of the cost of the insurance
COBRA gives you the same benefits and includes _____
family
Under COBRA, an employer needs _____ or more employees
20
What is not included in social security?
Medicaid
FinCEN may impose ______ not _______ penalties
civil; criminal
Banks may file a Suspicious Activity Report within ____ days
30
Antitrust laws prohibit businesses from engaging in conduct that could stifle __________
free competition
Vertical restraints of the Sherman Act balance:
anticompetitive and competitive effects
Inherently illegal restraints are:
illegal per se (horizontal restraints)
____ price fixing is between competitiors (per se violation) and ____price fixing is between the retailer and manufacturer
horizontal; vertical
Section ____ of the Sherman Act prohibits monopolies
2
The ________ Act stops monopolies or antitrust violations before they occur
Clayton
Section 2 of the Clayton Act prohibits ____________
price discrimination
Section 2 (Robinson-Patman) of the Clayton Act prohibits ____________
price discrimination of commodities of like grade or quality
The Federal Trade Commission Act does NOT allow____________ suits
private party
There is a _____threshold for the filing of a current transaction report
$10,000
Bill of lading represents goods that are:
transported by a carrier
The issuer of a document of title is called a :
bailee (could be UPS or warehouse)
Musical compositions owned by the original artist is a _______ asset
capital
Real property is depreciated using the _______ convention
mid-month
The income distribution deduction for estates is the lower of ______ or ______
DNI ; actual distributions
The Section 179 deduction for CORPORATIONS is $25K lowered by the amount of property placed in service OVER ________
200K
