REG Flashcards
What remedy can surety seek before paying a debt?
Exoneration ( Indemnification, subrogation, and contribution are all remedies available to the surety after he has paid the creditor.)
Which account must be capitalized in order to convert AMTI to ACE
Amortization of organizational expenditures.
Which exception allows C corporation to use cash method of accounting?
If the C corporation is a qualified personal service corporation, or if the C corporation for every year has average gross receipts of $5 million or less for any prior three-year period and does not have inventories.
What is sec 1245 recapture
1245 recapture = depreciation 1231 gain (Long term)= Gain -depreciation
Office furniture is Sec. 1245 property and gain from its sale is subject to Sec. 1245 recapture, which recaptures gain as ordinary income to the extent of all depreciation previously deducted. Any gain not recaptured would be a Sec. 1231 gain because the office furniture was property that was used in a trade or business and held for more than one year.
Four years ago, a self-employed taxpayer purchased office furniture for $30,000. During the current tax year, the taxpayer sold the furniture for $37,000. At the time of the sale, the taxpayer’s depreciation deductions totaled $20,700.
Selling price $37,000 Cost $30,000 Depreciation − 20,700 Adjusted basis − 9,300 Recognized gain $27,700 Sec. 1245 recapture − 20,700 Sec.. 1231 gain / LTCG $ 7,000
What is an insurance deed
An insurable deed is one where an insurance company, usually a title company, assumes the risk of any defects in title.
What is the charitable contribution base for a corporation?
Taxable income computed before the charitable contributions deduction, the dividends-received deduction, a NOL carryback (but after carryover), and a capital loss carryback (but after carryover)
What are the necessary requirements for a valid deed
(1) the names of the buyer (grantee) and the seller (grantor), (2) words evidencing an intent to convey, (3) a legally sufficient description of the land, (4) the grantor’s (and usually the spouse’s) signature, and (5) delivery of the deed.
Is the firm offer rule applicable to sale of property?
No
When can a creditor resort to pledged collateral?
Immediately upon default
When is a liquidated damage close unenforceable?
If either at the time of contract formation, damages would not be difficult to estimate, or the amount set as damages is considered as a penalty
What are the conditions to be a creditor beneficiary
one party to a contract in question owed the creditor money, and the contract in question was made specifically to satisfy that debt.
What is the depreciable basis of equipment?
The basis includes all of the costs incurred to prepare the asset to be placed in service/ Example : Purchase price. $55,000 Delivery charges. $725 Installation fees, $300 Sales tax. $3,400 Depreciable basis = 59’425
What is the donee basis in property acquired by gift?
The donor’s basis in the property plus the gift tax paid. However, if the fair market value of the gifted property at the time of the gift is less than the donor’s basis in the property, the donee assumes the fair market value of the property at the time of the gift as its basis for computing losses. The donee still uses the donor’s basis in the property plus the gift tax paid in computing gains.
Are corporation capital losse’s deductible?
Deductible only to the extent of capital gains (since it is netted)
Unused capital losses maybe carried back for 3 years and carried forward for 5 years
What is the maximum deduction for a given year for a Section 1244 loss?
50’000 ($100,000 if married filing jointly) (ordinary loss). Remaining is treated whather in capital loss or ordinary loss (depending on the nature of asset)
Example : In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Code Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Code Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?
=>$50,000 ordinary loss and $18,000 capital loss (since it is investment = capital asset).
Which of long-term or short-term capital gains are eligible to be taxed at preferential rates?
Long-term capital gains
What are the conditions to qualify for ordinary treatment?
1244 stock must be issued to the taxpayer for money or other property transferred by the taxpayer to the corporation.
Example : Jackson, a single individual, inherits Bean Corp. common stock from his parents. Bean is a qualified small business corporation under Code Section 1244.
The stock costs Jackson’s parents $20,000 and has a fair market value of $25,000 at the parents’ date of death. During the year, Bean declares bankruptcy and Jackson is informed that the stock is worthless. What amount may Jackson deduct as an ordinary loss in the current year? =>0
How is treated carryover (5 years) and carry back (3 years)?
It is treated as a short-term capital loss, whether or not it was short-term when sustained.
How are gain on the sale of a realty taxed?
Taxed at a 25% rate to the extent of the straight-line depreciation claimed on the asset. (Note that there is no Section 1250 recapture if straight-line depreciation is used for the asset.)
The remaining gain is taxed as section 1231 gain.
What does the lookback provision state?
It states that the net Section 1231 gains must be offset by net Section 1231 losses from the five preceding tax years that have not previously been recaptured. To the extent of these losses, the net Section 1231 gain is treated as ordinary income. Example : Year Results of Operations. 1 Section 1231 losses of $50,000. 2 Section 1231 losses of $30,000. 3 Section 1231 gains of $75,000 4 Section 1231 losses of $20,000 5 Section 1231 losses of $30,000 6 Section 1231 gain of $80,000 => $55,000 ordinary income; $25,000 Sec. 1231 gain.
How are treated Section 1245 property’s recapture gains?
Treated as ordinary income to the extent of depreciation or amortization taken on the property.
BPC owns equipment with the following tax characteristics :
Original cost $40,000 /Depreciation Claimed $15,000 /Straight-Line Depreciation $10,000 /Current Fair Market Value $60,000 /Holding Period 3 years
Total Gain/ Ordinary Income/ Capital Gain/Section 1231 Gain?
Amount realized $ 60,000 Cost $40,000 Depreciation claimed (15,000) Adjusted basis (25,000) Realized and recognized gain 35,000 Recaptured as ordinary income (15,000) Section 1231 Gain 20,000
None of the gain is capital since the asset is a Section 1231 asset.
Video Productions owns a factory with the following tax characteristics:
Original cost $300,000 / Depreciation Claimed $40,000 /Straight-Line Depreciation $40,000 /Current Fair Market Value $360,000 /Holding Period 4 years
Total Gain : 100’000 (For Section 1250 property, only the excess of actual depreciation over straight-line depreciation is subject to recapture as ordinary income. 360’000-300’000+40’000)
Ordinary Income : 0 (Recapture applies only to Section 1231 property)
Gain taxed at 25% rate : 40’000 (Depreciation Claimed)
Capital Gain : 0
Section 1231 Gain : 60’000 (The amount not recaptured in ordinary income is categorized as a Section 1231 gain. )
What is Section 1245 recapture?
It recharacterizes gains on personalty as ordinary income to the extent of accumulated depreciation.
What is Section 1250 recapture?
Recapture of accumulated accelerated depreciation on buildings in excess of straight-line depreciation as ordinary income.
For buildings owned by individuals “unrecaptured Section 1250 gains” recharacterizes gains on realty as eligible for a special (25%) tax rate to the extent of accumulated straight-line depreciation.
What are the requirement to qualify for MACRS accelerated depreciation?
For listed property only if the business use of the asset exceeds 50% of the total use.
If not, must use straight-line depreciation
Is Goodwill amortizable?
Yes always
Does Covenants not to compete qualify for amortization?
Yes if acquired in connection with the acquisition of a trade or business.
How long is the statutory amortization period for a covenant not to compete that is related to a business acquisition?
15 years
Under MACRS what is the use of the property depreciable basis as determined by code section 162?
It is used to compute the depreciation deductions, except that salvage values are considered to be zero.
What is the limit of Code section 179 deduction?
Deduction limited to the amount of taxable income originating from the trade or business in which the property is used and is reduced dollar-for-dollar when the taxpayer places qualifying tangible personal property in service that exceeds $20,000.
What is the requirement to be eligible to Code section 179?
Property purchased for use in active trade or business
To what Code Section 179’s deduction is applying?
Limited to the net income from the business, $15,000
The accountant may be liable in preparation of unaudited financial statements, including compiled and reviewed financial statements for nonissuers (nonpublic companies) if?
(1) Failure to mark each page, “unaudited,” or “See Accountant’s Compilation Report,” or “See Accountant’s Review Report.”
(2) Failure to issue a disclaimer of opinion, or an appropriately worded compilation or review report.
(3) Failure to follow appropriate AICPA Statements on Standards for Accounting and Review Services.
(4) Failure to inform client of any discovery of indications of major issues. For example, circumstances indicating presence of fraud.
List the priorities for the satisfaction of claims against the debtor in a bankruptcy proceeding under The Bankruptcy Reform Act
(1) Domestic support obligations (e.g., child support, alimony)
(2) Administration costs (Includes fees to accountants, attorneys, trustees,…)
(3) Claims arising in ordinary course of debtor’s business after involuntary bankruptcy petition is filed but before order for relief is entered
(4) Wages, salaries, and commissions, including vacation, severance, and sick leave owing to bankrupt’s employees up to $11,725 per employee earned within 180 days before the petition in bankruptcy was filed (or cessation of business, whichever occurred first)
(5) Contributions to employee benefit plans within the prior 180 days, limited to $11,725 per employee, reduced by amount received as wage preference
(6) Claims on storage of grain or fish up to $5,775 for each individual
(7) Consumer deposits for undelivered goods or services limited to $2,600 per individual
(8) Taxes (federal, state, and local)
(9) Obligations to an insured bank
(10) Debts arising from motor vehicle accidents while under the influence of drugs or alcohol
(11) General (unsecured) creditors that filed timely proofs of claims
What is a corporation estimated tax?
It is its expected tax liability (including alternative minimum tax) less its allowable tax credits.
Who must incurred expenses related to child dependent care credit?
Expenses must be incurred on behalf of a qualifying individual. A qualifying individual includes a taxpayer’s child (e.g., taxpayer’s child, stepchild, sibling, stepsibling, or descendant of any of these) under age 13, as well as a dependent or spouse who is physically or mentally incapable of self-care.
Claims and Expenses
Claim by Dart Corp. (one of Knox’s suppliers) for computers ordered on April 6, and delivered on credit to Knox on April 10. $20,000
Fee earned by the bankruptcy trustee. $15,000
Claim by Boyd for a deposit given to Knox on April 1, for a computer Boyd purchased for personal use but that had not yet been received by Boyd. $ 1,500
Claim by Noll Co. for the delivery of stereos to Knox on credit. The stereos were delivered on April 4, and a financing statement was properly filed on April 5. These stereos were sold by the trustee with Noll’s consent for $7,500, their fair market value. $ 5,000
Fees earned by the attorneys for the bankruptcy estate. $10,000
Claims by unsecured general creditors $ 1,000
The cash available for distribution includes the proceeds from the sale of the stereos.
What amount will be distributed to Boyd if the cash available for distribution is $50,800?
When distributing the assets of the debtor’s estate, the trustee must follow priorities prescribed by bankruptcy law. In this case the first $5,000 of the remaining assets would be paid to Noll Co. since secured creditors have first priority concerning the property acting as their collateral. The next $25,000 would be paid to the trustee ($15,000) and attorneys ($10,000) because administrative costs are first priority among unsecured creditors. Next, $20,000 of the remaining $20,800 ($50,800 − $5,000 − $25,000) would be distributed to claims arising in the ordinary course of the debtor’s business after the involuntary bankruptcy petition is filed but before the order for relief is entered, a gap creditor. Since Dart Corp. is the only remaining creditor which falls into this category, it will be paid the full $20,000 owed it, leaving $800 ($20,800 − $20,000). Of the remaining creditors, Boyd is given a higher priority since consumers’ deposits for undelivered goods or services (subject to a limit per individual) is given a higher priority than general, unsecured creditors. Thus, Boyd will receive the remaining $800.
To what is limited the distributed property’s basis of a the partner?
Although a partner’s basis for distributed property is generally the same as the partnership’s former basis for the property (a transferred basis), the distributed property’s basis will be limited to the partner’s basis for the partnership interest reduced by any money received in the same distribution
Example : Hart’s adjusted basis for his interest in a partnership was $30,000. He received a nonliquidating distribution of $24,000 cash plus a parcel of land with a fair market value and partnership basis of $9,000. Hart’s basis for the land is 6,000 (30’000-24’000)
Is gain or loss recognized if stock is exchanged solely for stock in a corporation that is a party to the reorganization?
No gain or loss is recognized
When is income generally reported under accrual method?
Under the accrual method, income generally is reported in the year earned. If an amount is included in gross income on the basis of a reasonable estimate, and it is later determined that the exact amount is more, then the additional amount is included in income in the tax year in which the determination of the exact amount is made.
To what is the basis of shareholder’s original stock allocated if nontaxable stock is received?
If nontaxable when received, the basis of shareholder’s original stock is allocated between the dividend stock and the original stock in proportion to their relative FMVs
On January 5, 2015, Norman Harris purchased for $6,000, 100 shares of Campbell Corporation common stock. On July 8, 2015, he received a nontaxable stock dividend of 10 shares of Campbell Corporation $100 par value preferred stock. On that date, the market values per share of the common and preferred stock were $75 and $150, respectively. Harris’ tax basis for the common stock after the receipt of the nontaxable preferred stock dividend is 5’000
Harris’ original common stock basis must be allocated between the preferred and common stock according to relative market values:
Common stock
Market value = $75 × 100 shares = $7,500
Preferred stock
Market value $150 × 10 shares = 1,500 Total value $9,000
The ratio of the common stock to total value is 7,500/ 9,000 or 5/6. This ratio multiplied by the original common stock basis of $6,000, results in a basis for the common stock of $5,000. Note that the basis of the preferred stock is $1,000 (1/6 × $6,000).
How may a corporation reduce its income tax?
By taking a tax credit for foreign income taxes.
What is included in the support of a dependent?
Food, FMV of lodging, medical, recreational, educational, and certain capital expenditures made on behalf of a dependent.
What is excluded in the support of a dependent?
Life insurance premiums, funeral expenses, nontaxable scholarships, and income and social security taxes paid from a dependent’s own income.
What is the only defense available to a seller under strict liability?
The only defenses available to a seller are misuse and assumption of risk. A buyer misuses a product when he uses it for some purpose other than the purpose for which the product was originally intended. Assumption of risk exists when an individual uses the product without regard to an inherent danger associated with the product.
What is “retained earnings- unappropriated?
“it is a ““per books”” figure found on Schedules L and M-2 of the corporate tax return Form 1120. The beginning balance is increased by the net income per books and decreased by the dividends paid and the debit adjustment.
“
Are interest expense on a qualified education loan is deductible in the computation of an individual’s adjusted gross income?
Yes. The maximum annual deduction is limited to $2,500 and is reduced by modified adjusted gross income in excess of $60,000 if single, head of household, or a qualifying widow(er); $120,000 if married filing jointly.
To which extent is the realized gain from involuntary conversion recognized?
“Only to the extent that the insurance proceeds are not reinvested in similar property.
Example :
David Price owned machinery which he had acquired in 2013 at a cost of $100,000. During 2015, the machinery was destroyed by fire. At that time it had an adjusted basis of $86,000. The insurance proceeds awarded to Price amounted to $125,000, and he immediately acquired a similar machine for $110,000. What should Price report as ordinary income resulting from the involuntary conversion for 2015?
The realized gain from involuntary conversion of $39,000 ($125,000 insurance proceeds ? $86,000 adjusted basis) is recognized only to the extent that the insurance proceeds are not reinvested in similar property. This results in a recognized gain of $15,000 ($125,000 ? $110,000). Because the machinery was Sec. 1245 property, this recognized gain of $15,000 is recaptured as ordinary income to the extent of the $14,000 of depreciation previously deducted, while the remaining $1,000 is classified as Sec. 1231 gain.”
What is required for an investor corporation to qualify for dividends-received deduction (DRD)?
To qualify for a DRD, the investor corporation must own the investee’s stock for more than 45 days (more than 90 days for preferred stock if the dividends received are in arrears for more than 1 year).
In which case a principal has not power to terminate an agency relationship?
Where the agency is an agency coupled with an interest (i.e., where the agent owns part of the subject matter, the principal does not have the power to terminate the relationship).
Is receipt of a common stock distribution on common stock excluded from gross income?
“Yes. As a result, the cost of the original shares is divided by the total shares owned (including the dividend shares) to determine the basis for each share.
Example :
Taylor owns 1,000 shares of Media Corporation common stock with a basis of $22,000 and a fair market value of $33,000. Media paid a nontaxable 10% common stock dividend. What is the basis for each share of Media common stock owned by Taylor after receipt of the dividend? 20 (22’000/(1000+10%*1’000))”
Which types of entities qualify for net operating loss (NOL) deductions?
Trusts and estates may have an NOL that can be carried back and carried forward and used as a deduction. Furthermore, for the year in which a trust or estate terminates, any remaining unused NOL passes through to the beneficiaries who succeed to the assets of the trust or estate.
To which extent must ordinary income be reported regarding the sale of partnership interests?
“A partnership interest is a capital asset and a sale generally results in capital gain or loss, except that ordinary income must be reported to the extent of the selling partner’s share of unrealized receivables and appreciated inventory.
Example :
On December 31, after receipt of his share of partnership income, Clark sold his interest in a limited partnership for $30,000 cash and relief of all liabilities. On that date, the adjusted basis of Clark’s partnership interest was $40,000, consisting of his capital account of $15,000 and his share of the partnership liabilities of $25,000. The partnership has no unrealized receivables or substantially appreciated inventory. What is Clark’s gain or loss on the sale of his partnership interest?
Clark realized $55,000 from the sale of his partnership interest ($30,000 cash + relief from his $25,000 share of partnership liabilities). Since the partnership had no unrealized receivables nor appreciated inventory and the basis of Clark’s interest was $40,000, Clark realized a capital gain of $55,000 ? $40,000 = $15,000 from the sale.”
What is unlawful under Rule 10b-5 of the Securities Exchange Act of 1934?
it is unlawful to use any manipulative or deceptive devices in the purchase or sale of securities if the mail, interstate commerce, or a national stock exchange is used.
When can an accrual tax-basis payer accrue an expense?
if the transaction meets both an all-events test (existence of liability established and amount can be determined with reasonable accuracy) and an economic performance test (property or service are actually provided)
What is the purpose of Schedule M-2 of Form 1120?
"Analyzes changes in a corporation’s Unappropriated Retained Earnings per books between the beginning and end of the year.
Balance at beginning of year
Add: Net income per books
Other increases
Less: Dividends to shareholders
Other decreases (e.g., addition to reserve for contingencies)
Balance at end of year
"Which items do not qualify under the like-kind exchange rule?
Exchanges involving property held primarily for sale; stocks, bonds, notes and other securities; partnership interests; certificates trusts or beneficial interest; and evidences of indebtedness are not considered “like-kind” exchanges
Hogan exchanged a business-use machine having an original cost of $100,000 and accumulated depreciation of $30,000 for business-use equipment owned by Baker having a fair market value of $80,000 plus $1,000 cash. Baker assumed a $2,000 outstanding debt on the machine. What taxable gain should Hogan recognize?
"This is a qualified like-kind exchange because a machine was exchanged for equipment and Hogan's use for each is for business purposes. Amount Realized: Equipment received $80,000 Cash 1,000 Debt relief 2,000 Total $ 83,000
Adjusted Basis:
Cost $100,000
Depreciation (30,000)
(70,000)
Realized Gain $13,000
Debt relief and the cash received are both considered to be boot received, which is a total of $3,000. The recognized gain is the lower of the realized gain, $13,000, or boot received, $3,000.
“
How is recognized deferred gain under intallment sales?
“A ““gross profit percentage”” is multiplied by the cash received to determine the gain recognized
Gross profit percentage : The ratio of gain to be recognized to contract price (the total cash to be received).
Example :
In the current year, Essex sold land with a basis of $80,000 to Yarrow for $100,000. Yarrow paid $25,000 down and agreed to pay $15,000 per year, plus interest, for the next five years, beginning in the second year. Under the installment method, what gain should Essex include in gross income for the year of sale?
The total gain from the sale is $20,000 ($100,000 - $80,000). Under the installment method, 25% ($25,000 paid first year/$100,000) is of the gain is recognized in the year of sale. 25% x $20,000 = $5,000. “
What is the gross profit on sales for a transactino qualifyinig for installement sale treatment?
The gross profit on the sale is the amount realized less the property’s adjusted basis.
Who are not considered related parties?
A taxpayer’s in-laws
What is the shareholder’s basis for stock
“Adjusted basis of property transferred
+ Gain recognized
? Boot received (assumption of liability always treated as boot for purposes of determining stock basis)
“
What is the Corporation’s basis for property?
Transferor’s adjusted basis + Gain recognized to transferor.
When must issuers of securities which are traded over-the-counter report?
Must report only when they have in excess of $10 million in total assets and more than 500 holders of record (stockholders) as of the last day of the issuer’s fiscal year.
When is client’s permission needed to transfer working paper?
Working papers may not be transferred to another accountant without the client’s permission.
What is a constructive eviction?
“Allowing conditions which make property unusable if lessor is liable for condition of premises.
Example : The landlord refuses to provide utilities to the tenant.”
Who must sign a secrutiy agreement?
The debtor
When is the creation of joint ownership is treated as a gift?
The creation of joint ownership in property is treated as a gift to the extent the donor’s contribution exceeds the donor’s retained interest.
When can a minor disaffirm a contract?
A minor may disaffirm a contract at any time until the minor reaches the age of majority or a reasonable time thereafter.
How are expenses incurred for printing and selling stock certificates treated?
“These expenses of issuing stock are treated as a reduction of paid-in capital.
Expenses incurred for printing and selling stock certificates are neither deductible, nor amortizable as organization expenditures. “
When is the rate of 35% applied for a credit to child care equal
“The credit is 35% if AGI is $15,000 or less, but is reduced by 1 percentage point for each $2,000 (or portion thereof) of AGI in excess of $15,000 (but not reduced below 20%).
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What happens if a negligence of a CPA cannot be proved?
A CPA will not be held liable
How are treated recognized gains of property subject to Sec. 1245?
“Any recognized gain will be ordinary income to the extent of all depreciation or post-1980 cost recovery deductions. Any remaining gain after recapture will be Sec. 1231 gain if property held more than one year.
Example :
On May 31, 2015, Day Corporation sold machinery for $41,000. The machinery which had been purchased on January 2, 2013, for $40,000 had an adjusted basis of $21,000 on the date of sale. For 2015 Day should report?
Section 1231 gain of $1,000 and ordinary income of $19,000 (gain = 41’000-21’000 = 20’000 and amortization is 40’000-21’000=19’000)
”
The CSU partnership distributed to each partner cash of $4,000, inventory with a basis of $4,000 and a fair market value (FMV) of $6,000, and land with an adjusted basis of $5,000 and an FMV of $3,000 in a liquidating distribution. Partner Chang had an outside basis in Chang’s partnership interest of $12,000. In the second year after receiving the liquidating distribution, Chang sold the inventory for $5,000 and the land for $3,000. What income must Chang report upon the sale of these assets?
”
No gain or loss would be recognized by Chang upon the receipt of the cash, inventory, and land in complete liquidation of his partnership interest. The $12,000 basis for Chang’s partnership interest would first be reduced by the $4,000 of cash received, then reduced by the $4,000 basis of the inventory received, with the remaining $4,000 of partnership basis becoming the basis of the land to Chang. The subsequent sale of the inventory with a basis of $4,000 for a selling price of $5,000 results in $1,000 of ordinary income. Chang must recognize the gain from the sale of inventory as ordinary income because the inventory was sold within 5 years of its receipt. Finally, assuming that Chang held the land as a capital asset, the sale of the land with a basis of $4,000 for a selling price of $3,000 results in a $1,000 capital loss.
“
What is required to employee if the recovers from the third party and accepted workers’ compensation?
if the employee recovers from the third party, he is required to reimburse his employer to the extent that the recovery duplicates the benefits already received from workers’ compensation.
What the statutes of fraud requiring for contract for sales of goods?
“The Statute of Frauds generally requires contracts for a sale of goods of $500 or more to be in writing and signed by the person refusing performance. However, there are several exceptions, and this scenario illustrates one of them. If between merchants a confirmatory memorandum is sent and is not objected to in writing within 10 days by the merchant receiving it, then the Statute of Frauds is satisfied. Webstar must, therefore, honor this valid oral contract.
The Statute of Frauds generally requires contracts for a sale of goods of $500 or more to be in writing and signed by the person refusing performance. However, there are several exceptions : if between merchants a confirmatory memorandum is sent and is not objected to in writing within 10 days by the merchant receiving it, then the Statute of Frauds is satisfied.
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When is the risk of losses passing from seller to buyer if seller is a nonmerchant?
In absence of agreement, where the buyer takes possession of the goods without a contractual obligation to ship or deliver by the seller, and the goods are not represented by a document of title, if the seller is a nonmerchant, risk of loss passes from seller to buyer at the time the seller tenders delivery.
If the shipment terms require the seller to deliver goods under an F.O.B. destination contract, ahat are seller’s requirement?
If the shipment terms require the seller to deliver goods under an F.O.B. destination contract, the seller is required to properly “tender” the goods to the buyer at the specific destination stated in the contract (not a destination specified by the buyer). This place can be other than the buyer’s place of business
What is the liability of seller for injuries caused by products they sell being used in their intended fashion?
Strict liability : it means that they are responsible to pay damages no matter how much fault they share. Contributory negligence on buyer’s part will not bar recovery. Buyer does not have to show that any of the defendants acted negligently or unreasonably.
By what is implied warranty of merchantability?
The implied warranty of merchantability is implied by law. It arises automatically upon a sale by a merchant.
What must plaintiff show to win a case under a breach of the implied warranty of merchantability?
the plaintiff must show that a merchant sold the goods and that a breach of this warranty was the cause of an injury suffered
What are the 3 types of expressed warranty under the sales articles of UCC?
“1. Affirmations of fact or promises
2. Description of the goods
3 Sample or model - Bulk will conform exactly to the sample.”
Which are the warranty automatically attached upon the formation of a sales contract?
Implied warranty of merchantability and title
Are punitive damaged awarded based on breach of contract?
No
When is inspection allowed for A C.O.D. (cash on delivery) contract?
After payment is made
What is the right of Replevin?
The right of replevin has to do with recovering identified property that is being improperly held by the seller when the buyer cannot find another seller.
Where the seller justifiably withholds delivery of goods and the buyer has made a deposit or payment and there is no liquidated damage clause how much can keep the seller?
Where the seller justifiably withholds delivery of goods and the buyer has made a deposit or payment and there is no liquidated damage clause, the seller may keep $500 or 20% of the purchase price, whichever is less.
What is the code section for personalty?
Section 1245 =>Section 1245 property is any property that is not realty. Realty is land and buildings. All depreciation taken on Section 1245 property is subject to being recaptured as ordinary income.
What is the code section for realty?
Section 1250 =>Realty is land and buildings. For Section 1250 property, only the excess of actual depreciation over straight-line depreciation is subject to recapture as ordinary income. The portion of the gain that would be recaptured if all depreciation taken was subject to recapture under Section 1245 over the regular Section 1250 recapture is taxed at 25%, rather than as a Section 1231 gain. The amount subject to the 25% rate is usually the straight-line depreciation on the asset.
How is debt relieved considered in a like-kind exchanged?
As a boot (shall be added to cash received while comapring with realized gain to determine debt relief)
When should a cash-basis tax payer report gross income?
A cash-basis taxpayer should report gross income for the year in which income is either actually or constructively received, whether in cash or in property.
What is the condition to exlude Federal and state income tax refunds from a taxpayer’s taxable income?
Federal and state income tax refunds are excluded from a taxpayer’s taxable income to the extent that the refund did not reduce the amount of tax for the earlier year. However, any interest earned on these refunds is considered taxable income.
How are amortized taxable bonds purchased at a premium?
Taxpayers may elect to amortize taxable bonds purchased at a premium. Non-taxable bonds purchased at a premium generally are required to be amortized. The amortized bond premium is based on the constant yield to maturity. The amount amortized usually reduces the taxpayer’s basis in the bonds and, for taxable bonds, results in an offsetting deduction for interest received from the bond.
How are return on donated samples treated in gross income?
A corporation may deduct the fair market value of the contributed property but must add the same amount to its gross income for the receipt of the gift.
Is interest on state government obligations is non tax-exempt or tax-exempt income?
Interest on state government obligations is tax-exempt income
Is Interest income received on U.S. Treasury certificates exempt or not from federal income tax?
Interest income received on U.S. Treasury certificates is not exempt from federal income tax.
How is calculated the amount of income realized by a taxpayer from a sale or disposition of property?
The amount of income realized by a taxpayer from a sale or disposition of property equals the sum of the amount of cash received and the fair market value of any property received.
Example : Perle, a dentist, billed Wood $600 for dental services. Wood paid Perle $200 cash and built a bookcase for Perle’s office in full settlement of the bill. Wood sells comparable bookcases for $350.
What amount should Perle include in taxable income as a result of this transaction? ->200+350 = 550
What are the conditions that must be met for tax exemption of accumulated interest on qualified U.S. Series EE Bonds?
The conditions that must be met for tax exemption of accumulated interest on these bonds is that the purchaser of the bond must have made the purchase after reaching the age of 24 and be the sole owner of the bonds (or joint owner with his or her spouse).
Under the tax benefit rule, How should be reported the recoveries of taxes previously deducted by a taxpayer that were overpaid?
Under the tax benefit rule, recoveries of taxes previously deducted by a taxpayer that were overpaid should be reported as income by the taxpayer in the year of recovery. The taxes subject to the tax benefit rule are: state income taxes; personal property taxes; real property taxes; state sales and use taxes; state corporation franchise taxes; stamp taxes; federal excise taxes; customs duties; and farmland preservation credits.
Taxpayers redeeming qualified U.S. Series EE Bonds in the same year that qualified higher education expenses are paid?
Qualified higher education expenses are tuition and fees required to enroll and attend a eligible educational institution.
Which expenses cannot be excluded in case of Taxpayers redeeming qualified U.S. Series EE Bonds in the same year that qualified higher education expenses are paid?
The exclusion applies only to education expenses incurred by the taxpayer, the taxpayer’s spouse, or any person whom the taxpayer may claim as a dependent for the year. Otherwise qualified higher education expenses are decreased by:
qualified scholarships that are not includible in gross income;
payment of educational expenses to an institution that is an exempt organization;
reimbursement, payment, or waiver of qualified educational expenses through a state tuition program; and
any educational allowance allowable under U.S. Tax Code.
This response correctly indicates that both statements in this question
Pursuant to a divorce decree what amount should be included in the individual’s gross income?
Alimony is included in the recipient’s income, but child support payments and property settlements are not.
What is included in the gross income of an unemployed person?
Wages are included in gross income for the year in which they are received. Unemployment compensation is also included in gross income since it replaces income that would have been received if working.
Are alimony paid under a divorce or a separation agreement included or not included as taxable income by the payee spouse and deductible or not deductibe by the payor spouse?
Alimony paid under a divorce or a separation agreement is included as taxable income by the payee spouse and deductible by the payor spouse. Payments that are fixed as child support are not treated as alimony.
Thus, these payments are not included as taxable income by the payee spouse nor deductible by the payor spouse. If the payor spouse pays less than the amount specified as child support payments, the entire amount is treated as child support payments.
Example :
A divorce agreement, executed in 2012, provides for Hall to receive $3,000 per month, of which $600 is designated as child support. After the child reaches 18, the monthly payments are to be reduced to $2,400 and are to be continued until remarriage or death. However, for the year 2014, Hall received a total of only $5,000 from her former husband. Hall paid an attorney $2,000 in 2014 in a suit to collect the alimony owed.
Hall’s divorce agreement provides for $3,000 per month, of which $600 is designated as child support. Hence, Hall should have received $28,800 in alimony and $7,200 in child support. However, she only received $5,000, which is less than the $7,200 she should have received in child support. Therefore, the entire $5,000 would be considered child support and Hall would not report any alimony.
What can an employee do if If an employer requires jury pay to be remitted in exchange for regular compensation for the period the employee was performing jury duty?
The employee may deduct the jury duty pay from her gross income as an adjustment arriving at adjusted gross income.
What are the requirement to exclude a gift from income?
Are excluded if the purpose of the transfer was detached generosity (no quid pro quo or consideration was expected in return for the transfer). If there is acceptance of the award and payment is received payment, FMV is included in income.
Fuller was the owner and beneficiary of a $200,000 life insurance policy on a parent. Fuller sold the policy to Decker, for $25,000. Decker paid a total of $40,000 in premiums.
Upon the death of the parent, what amount must Decker include in gross income?
Decker’s cost basis is the $25,000 he paid for the policy plus the $40,000 he paid in premiums. $200,000 less $65,000 = $135,000.
Blake, a single individual age 67, had a 2014 adjusted gross income of $60,000 exclusive of social security benefits. Blake received social security benefits of $8,400 and interest of $1,000 on tax-exempt obligations during 2014. What amount of social security benefits is excludable from Blake’s 2014 taxable income?
Provisional income (PI) = AGI + tax-exempt interest + 50% (SSB) PI = $60,000 + $1,000 + 50% (8,400) = $65,200.
Since PI ($65,200) exceeds Base Amount 2 ($34,000), then the taxable amount of SSB is the lesser of:
.85 x SSB ($8,400) = $7,140, or
.85 x [PI - BA2; $65,200 - $34,000) = $26,520, plus the lesser of
amount included based on the 50% formula (50% x $8,400) = $4,200, or
$4,500 (unless married filing joint, then $6,000), which provides $26,520 + $4,200 = $30,720 for part b of the formula.
Thus, the amount included in income is the lower of $7,140 or $30,720, so the amount excluded is $1,260 ($8,400 - $7,140)
Note : if BA1 : only 50% formula is used
What are the base amounts?
Married filing joint : BA1 = 32,000, BA2 = 44,000
Single : 25,000/34,000
Who is not ins scope of the Uniform Capitalization Rules ?
It do not apply to small personal property dealers (Small personal property dealers are defined as those with $10 million or less in gross receipts during the preceding three years)
When are made the accounting methods for a new corporation?
Accounting methods for a new corporation are made on the initial tax return
Which capitalization rules are required to be used by Manufacturers and certain retailers and wholesalers to capitalize direct and indirect costs allocable to property they produce and for property they purchase for resale?
Manufacturers and certain retailers and wholesalers are required to use the uniform capitalization rules to capitalize direct and indirect costs allocable to property they produce and for property they purchase for resale.
Marketing, selling, advertising, and distribution expenses is required or not required to be capitalized?
Marketing, selling, advertising, and distribution expenses are not required to be capitalized.
Must storage expenses be capitalized?
Storage costs are required to be capitalized to the extent that they can be traced to an off-site storage or warehouse facility. Those storage costs attributed to an on-site facility are not required to be capitalized.
How is calculated tax If a corporation filed a short-year return for 3 month
If a corporation filed a short-year return for 3 month, the income for that period is first multiplied by 4 (12 months/3 months) to annualize the income for 12 months. The corporate tax liability is then computed on this amount for the full 12 months. That amount is the multiplied by 3/12 to prorate for the short tax year.
Which costs are not included in inventory under the Uniform Capitalization rules for goods manufactured by the taxpayer?
Taxpayers subject to the uniform capitalization rules must capitalize all direct costs and certain indirect costs properly allocable to real property and tangible personal property produced by the taxpayer, except for research and experimental expenditures.
Ace Rentals Inc., an accrual-basis taxpayer, reported rent receivable of $35,000 and $25,000 in its 2014 and 2013 balance sheets, respectively. During 2014, Ace received $50,000 in rent payments and $5,000 in nonrefundable rent deposits.
In Ace’s 2014 corporate income tax return, what amount should Ace include as rent revenue?
Ace Corp. would report rent revenue of $65,000. Of this amount, $55,000 (the sum of $50,000 in rental payments and $5,000 in nonrefundable rent deposits) would be cash receipts. Ace Corp. is an accrual based taxpayer. Therefore, for tax purposes, income is earned when 1) all the events have occurred to attach the taxpayer’s right to receive the income and 2) the amount of income can be determined with reasonable accuracy. With respect to rent receivable, the income must have been earned to record it as a receivable.
Hence, in calculating rent revenue, the $10,000 increase in rent receivable from 2013 to 2014 would have to be added to the corporation’s cash receipts.
If inventories are used, which method should be used by tax payer for purchases and sales?
Unless the IRS consents to a change of method, taxpayers are to use the accrual method of accounting for purchases and sales if inventories are used.
Who cannot use cash method of accounting?
Regular C corporations;
Partnerships that have regular C corporations as partners;
Tax shelters. Note that the exceptions listed below do not apply to tax shelters.
Does the payment of federal income tax result in a deduction?
No. Since the payment of federal income tax does not result in a deduction, a subsequent refund of federal income tax will be nontaxable.
Is interest included in gross income?
Interest is generally fully included in gross income, including the interest on an overpayment of federal taxes.
When a mutual fund that invests in tax-exempt municipal bonds is permitted to pass the tax exemption on the bond interest on to its shareholders?
A mutual fund that invests in tax-exempt municipal bonds is permitted to pass the tax exemption on the bond interest on to its shareholders when the tax-exempt interest is distributed in the form of dividends. To qualify, the mutual fund has to have at least 50% of the value of its total assets invested in tax-exempt municipal bonds at the close of each quarter of its taxable year.
When must a lessor recognize income as a result of the capital improvements made by a lessee that revert to the lessor at the expiration of the lease?
Generally, a lessor will not recognize any income as a result of the capital improvements made by a lessee that revert to the lessor at the expiration of the lease. However, if the parties intend the improvements to be, in whole or in part, a substitute for rental payments, then the lessor must recognize the improvements as rental income equal in amount to the reduction in rental payments.
To which extent are insurnce proceeds tax-free if insurance proceeds are received as payment on a debt, rather than as life insurance proceeds paid “by reason of death of the insured.”
Insurance proceeds are tax-free only to the extent of the amount of unpaid debt, and any proceeds in excess of the debt repayment must be included in receiver’s gross income.
What are the requirement for a firm offer made by a merchant to hold an offer open for a stated period of time without consideration?
Must be in writing and signed by the merchant
What is required for an oral agreement which waives a non-breaching party’s rights arising out of a breach of contract
It requires consideration to be enforceable
What is the title insurance covering?
Title insurance insures against all defects of record and defects the grantee may be aware of (i.e Unrecorded assessments are not covered).
It also doesn’t cover zoning violations and closing costs
What is the extent of individual’s deduction for charitable contributions?
Since an individual’s deduction for charitable contributions cannot exceed an overall limitation of 50% of adjusted gross income
What are guaranteed payment made to a partner?
Guaranteed payments are payments made to a partner for services or for the use of capital if the payments are determined without regard to the amount of partnership income. Guaranteed payments are deductible by a partnership in computing its ordinary income or loss from trade or business activities and must be reported as self-employment income by the partner receiving payment.
Example : A payment that represents a 10% interest in partnership profits could not be classified as a guaranteed payment because the payment is conditioned on the partnership having profits.
Does a mortgage on real estate give the mortgagee the right to possess the real estate?
A mortgage provides the mortgagee with a nonpossessory interest in real property.
What kind of lien on the property is creating a mortgage?
A mortgage is a security interest in real property usually used to secure a debt. The mortgage creates a nonpossessory lien on the property in favor of the mortgagee.
To who may be made a promisory note?
To a bearer
How is the basis on net asset received in a like-kind exchanged computed?
Basis of asset given up - boot received + gain recognized
What happens if doubt exists on whether an instrument is a draft or a note?
the holder may treat the instrument as either. This doesn’t affect negociability
What is a quasi-contract?
A quasi contract is an implied-in-law rather than express agreement which results when one of the parties has been unjustly enriched at the expense of the other. The law creates such a contract when there is no binding agreement present to keep the unjust enrichment from occurring.
If an action has its origin in a personal physical injury, how are all resulting damages treated in gross income?
If an action has its origin in a personal physical injury, then all resulting damages (other than punitive damages) can be excluded from gross income.
Under the Securities Exchange Act of 1934, whith what must be furnised any person requested to sign a proxy?
Any person requested to sign a proxy must be furnished with a proxy statement disclosing material financial information as well as other material information.
When will a claim not be discharged in a bankrupcy proceeding?
Even when a general discharge is granted, there are certain debts that are not dischargeable by bankruptcy. Included in these are liabilities that arose from intentionally obtaining property or money by false representations or fraud.
Must bearer paper be endorsed to be negociated?
Unlike order paper, bearer paper need not be endorsed to be negotiated.
Which gain is subject to the 35% tax rate in a S corporation in the framework of an assets’ sale?
A C corporation that makes an S election is subject to a corporate level tax of 35% on its net recognized built-in gain if the gain is attributable to its net unrealized built-in gain as of the first day of its S status and the gain is recognized within 10 years after the effective day of its S election.
Example :
Magic Corp., a regular C corporation, elected S corporation status at the beginning of the current calendar year. It had an asset with a basis of $40,000 and a fair market value (FMV) of $85,000 on January 1. The asset was sold during the year for $95,000. Magic’s corporate tax rate was 35%. What was Magic’s tax liability as a result of the sale?
Magic’s net unrealized built-in gain on January 1 was $85,000 ? $40,000 = $45,000. When Magic subsequently sold the asset for a $55,000 gain, $45,000 of the gain is a recognized built-in gain subject to tax at a rate of 35%, resulting in a built-in gains tax of $45,000 × 35% = $15,750.
What is the effect of an oral stop payment order received by a bank? (for a check)
An oral stop payment order effectively keeps the bank from paying the check for a 14-day period
What are the porivions of the Gramm-Leach Bliley (Financial Modernization) Act of 1999
(1) Accountants are prohibited from disclosing to a nonaffiliated third party any nonpublic personal information about their clients.
(2) Related FTC regulations require accountants to develop, implement, and maintain a comprehensive information security program that outlines the ways in which they protect client information.
(3) Accountants are responsible for maintaining the confidentiality of information that is outsourced for processing, e.g., outsourced tax return preparation to a firm in a foreign country.
Jon Stenger, a cash-basis taxpayer and age 28, had adjusted gross income of $35,000 for 2014. During the year he incurred and paid the following medical expenses:
Drugs and medicines prescribed by doctors $ 300
Health insurance premiums 1,500
Doctors’ fees 2,250
Eyeglasses 75
Total $4,125
Stenger received $500 in 2014 as reimbursement for a portion of the doctors’ fees. If Stenger were to itemize his deductions, what would be his allowable net medical expense deduction?
This answer is correct. It would be computed as follows:
Drugs and medicines prescribed by doctors $ 300
Medical insurance premiums 1,500
Doctors’ fees ($2,250 ? $500 reimbursement) 1,750
Eyeglasses 75
Total $ 3,625
Less 10% of AGI ($35,000) (3,500)
Medical expense deduction for 2014 $ 125
Which of acts of the debtor will result in a bar to a general discharge of a bankrupt debtor?
Failing to explain satisfactorily a loss of assets that should have ended up in the estate.
Making false claims against the estate.
Taking out bankruptcy 3 years earlier (the rule bars a general discharge if the debtor took out bankruptcy within the previous 8 years)
On March 10, 2015, James Rogers sold 300 shares of Red Company common stock for $4,200. Rogers acquired the stock in 2013 at a cost of $5,000. On April 4, 2015, he repurchased 300 shares of Red Company common stock for $3,600 and held them until July 18, 2015, when he sold them for $6,000. How should Rogers report the above transactions for 2015?
The purchase of substantially identical stock within 30 days of the sale of stock at a loss is known as a wash sale. The $800 loss incurred in the wash sale ($5,000 basis less $4,200 amount realized) is disallowed. The basis of the replacement (substantially identical) stock is its cost ($3,600) plus the disallowed wash sale loss ($800). The holding period of the replacement stock includes the holding period of the wash sale stock. The amount realized ($6,000) less the basis ($4,400) yields a long-term gain of $1,600.
When is a principal generally liable for his or her agent’s torts against third parties? if committed within the scope of the agency relationship.
If committed within the scope of the agency relationship.
What are expenses’ requirement to be deductible in computing AMT for individuals?
Used to buy, build, or substantially improve the home
Give characteristics of warranty of infrigement
Warranty against infringement is granted along with the warranty of title and thus, does not need to be expressly stated in the contract to be enforceable.
Like warranty of title, a warranty against infringement can be disclaimed by specific language or circumstances that indicate that this warranty is not extended.
Protects the seller if the buyer furnishes specifications which result in an infringement.
When does an agreement to form a partnership need to be in writing?
The expressed agreement may be oral or in writing with, in general, one exception. A partnership agreement that cannot be completed within 1 year from the date on which it is entered into must be in writing.
Explain Privileged communications between accountant and client
a. Do not exist at common law so must be created by statute
(1) Only a few states have privileged communications
(2) Federal law does not recognize privileged communications
(3) If accountant acting as agent for (hired by) one who has privileged communication such as an attorney, then accountant’s communications are privileged
b. To be considered privileged, accountant-client communication must
(1) Be located in a jurisdiction where recognized
(2) Have been intended to be confidential at time of communication
(3) Not be waived by client
c. If considered privileged, valid grounds exist for accountant to refuse to testify in court concerning these matters
(1) This privilege is, in general, for benefit of client
(2) Can be waived by client
(3) If part of privileged communication is allowed, all of privilege is lost
d. Code of Professional Conduct prohibits disclosure of confidential client data unless
(1) Client consents
(a) Note that if client is a partnership, each partner is actually a client and therefore each must give consent
(2) To comply with GAAS and GAAP
(3) To comply with enforceable subpoena (e.g., courts where privilege not recognized)
(4) Quality review under AICPA authorization
(5) Responding to AICPA or state trial board
e. US Supreme Court has held that tax accrual files are not protected by accountant-client privilege
What happens if an agenrt acts without authority?
If an agent acts without authority, neither the principal nor the third party is bound to perform the contract.
Example :
Wallace, an agent for Lux, made a contract with Doolittle which exceeded Wallace’s authority. If Lux wishes to hold Doolittle to the contract, Lux must prove that Lux ratified the contract before withdrawal from the contract by Doolittle.
If Lux ratified Wallace’s unauthorized act before Doolittle withdrew from the contract, Doolittle would be bound by the agreement.
When will a gain be recognized by a distributee partner in a nonliquidating distribution?
Gain will be recognized by a distributee partner in a nonliquidating distribution if the amount of money received exceeds the partner’s basis for the partnership interest.
Gain or loss may be recognized by a distributee partner if a nonliquidating distribution is disproportionate with respect to the partner’s interest in partnership property.
When is a distribution disproportionate in a nonliquidating distribution?
A distribution is disproportionate if the partner receives more than the partner’s share of unrealized receivables and substantially appreciated inventory, and in return relinquishes a share in other assets, or receives more than the partner’s share in capital and Sec. 1231 assets, and in return, relinquishes an interest in the partnership’s unrealized receivables and substantially appreciated inventory.
What happens when returning to work after retirement? (social security)
Returning to work after retirement can reduce an individual’s Social Security benefits.
What is the limitation of the deduction for interest expense on investment indebtedness?
The deduction for interest expense on investment indebtedness is limited to the taxpayer’s net investment income. Net investment income includes such income as interest, dividends, and short-term capital gains, less any related expenses.
How is the basis of a partner decreasing or increasing?
A partner’s beginning basis is increased by the partner’s distributive share of all income items (including tax-exempt income) and is decreased by all loss and deduction items, as well as distributions received from the partnership. Additionally, a partner’s basis is increased by a net increase in partnership liabilities during the year, or decreased if there is a net decrease in partnership liabilities.
Example :
Dale was a 50% partner in D&P Partnership. Dale contributed $10,000 in cash upon the formation of the partnership. D&P borrowed $10,000 to purchase equipment. During the first year of operations, D&P had $15,000 ordinary income, $2,000 tax-exempt interest income, a $3,000 distribution to each partner, and a $4,000 reduction of debt. At the end of the first year of operation, what amount would be Dale’s basis?
Since Dale is a 50% partner, his beginning basis of $10,000 is increased by his 50% share of ordinary income ($7,500), 50% share of tax-exempt income ($1,000), 50% share of the net increase in partnership liabilities ($3,000), and decreased by the $3,000 distribution that Dale received, resulting in a basis of $18,500.
When may a tenent evicted from an appartment?
A tenant may be evicted from an apartment if s/he uses it for illegal purposes.
What are the contents requirements of a financing statement
The financing statement only needs the names of the debtor and secured party; it must also contain a description of the collateral. Note that addresses are sometimes used to confirm the identity of the debtor
What is an innocent misrepresentation?
An innocent misrepresentation is a misstatement of fact made with an honest and justifiable belief (in good faith), without intent of defraud (i.e., scienter). Therefore, a plaintiff is not required to prove that the misrepresentation amounted to gross negligence to prevail in an action for innocent misrepresentation.
Any benefits received by the parties must be returned in order to restore each party to his/her precontractual position.
What is the scope of application of Age Discrimination in Employment Act?
The Age Discrimination in Employment Act generally applies to the employment of individuals at least 40 years old by businesses employing at least 20 people.
What kind of tax are not discharged by bankrupcy proceedings?
Any unpaid amount of taxes due to the United States or to any state or subdivision thereof from within 3 years preceding bankruptcy is not discharged by the bankruptcy proceeding.
Under a Chapter 11 reorganization is a debtor is allowed to remain in possession of its assets?
Under a Chapter 11 reorganization normally a debtor is allowed to remain in possession of its assets. The purpose of a Chapter 11 reorganization is to keep the financially troubled firm in business.
Which securities issuances are exempt from the registration requirements of the 1933 Act. (2 examples)?
Securities issued by a common carrier regulated by the Interstate Commerce Commission are exempt from the registration requirements of the 1933 Act.
Securities of savings and loans supervised by federal authorities are exempt from the registration requirements of the 1933 Act.
Who provides funding of a noncontributory pension plan?
Funding of a noncontributory pension plan is provided entirely by the employer.
Pope, a C corporation, owns 15% of Arden Corporation. Arden paid a $3,000 cash dividend to Pope. What is the amount of Pope’s dividend-received deduction?
The requirement is to determine Pope’s dividend-received deduction for the $3,000 dividend received from a 15%-owned corporation. Dividends received from a less than 20%-owned taxable domestic corporation are generally eligible for a 70% DRD. Here, Pope’s DRD would be $3,000 × 70% = $2,100
Whart is a power of attorney?
A power of attorney is written authority conferred to an agent. It is conferred in a formal writing. A power of attorney can be general or it can grant the agent only restricted authority.
The power of attorney must be signed only by the person granting such authority. Anyone with the legal capacity to enter into an agency relationship may be granted the power of attorney
What is inducing the death of a principal in an agency relationship?
The death of the principal constitutes the termination of an agency relationship by operation of law.
How will generally a corporation recognize gain or loss on the distribution of its property in liquidation?
Generally, a corporation will recognize gain or loss on the distribution of its property in liquidation just as if the property were sold to the distributee at its fair market value.
Example : During the current year, Aca Corp. adopted a plan of complete liquidation. Distributions to stockholders during the current year, under this plan of complete liquidation, included marketable securities purchased in 2012 with a basis of $100,000 and a fair market value of $120,000 at the date of distribution. In Aca’s current year return, what amount should be reported as long-term capital gain?
Since the marketable securities were held more than 12 months, their distribution results in a long-term capital gain of $120,000 ? $100,000 = $20,000.
On June 3, Muni Finance loaned Page Corp. $20,000 to purchase four computers for use in Page’s trucking business. Page contemporaneously executed a promissory note and security agreement. On June 7, Page purchased the computers with the $20,000, obtaining possession that same day. On June 10, Mort, a judgment creditor of Page, levied on the computers.
Which of the following statements is correct?
attachment of a security interest in personal property occurs when the following three requirements have been fulfilled; the secured party gives value, the debtor has rights in the collateral, and a record of the security agreement must exist. The secured party gave value and the security agreement existed on June 3, but the debtor did not acquire any rights in the collateral until June 7, the day of the purchase.
What is novation?
A novation is an agreement between three parties whereby a previous agreement is discharged by the creation of a new agreement.
What is required in order for an employee to recover under a compulsory state workers’ compensation statute?
Under the various states’ compulsory worker’s compensation acts, any employee injured within the scope of employment is entitled to receive medical or disability benefits. There is no need, as there is under the common law, to prove negligence on the part of the employer. Therefore, the employer’s common law defenses, such as contributory negligence on the part of the employee and negligence of a fellow employee, are destroyed
What is the difference between complex and simple trust?
A complex trust is one in which the trustee (1) has discretion whether to distribute or accumulate its income, (2) may make charitable contributions, and (3) may distribute trust principal. A simple trust is one that (1) is required to distribute all of its income each year, (2) cannot make charitable contributions, and (3) cannot make distributions of trust principal.
What happen when no power over the trust is retained?
When no powers over the trust, the trust cannot be a grantor trust nor can it be a revocable trust.
Which rates are applied to life and death transfers by the unified transfer tax rate schedule?
The unified transfer tax rate schedule applies the same tax rates on a cumulative basis to both life and death transfers. For example, during a person’s lifetime, a tax is first computed on cumulative lifetime taxable gifts, then is reduced by the tax on taxable gifts made in prior years in order to tax the current year’s gifts at applicable marginal rates.
How are taxed the unified transfer at death?
At death, a unified transfer tax is computed on total life and death transfers, then is reduced by the tax already paid on post-1976 gifts, the unified tax credit, foreign death taxes, and prior transfer taxes.
What are the requirements to be considered head of household?
Applies to unmarried person not qualifying for surviving spouse status but who maintains a household for more than one-half of the taxable year for
a. A qualifying child of the taxpayer (e.g., taxpayer’s children, siblings, step-siblings, and their descendants under age 19, or under age 24 and a student), but not if such qualifying child is married at the end of the taxable year and is not a dependent of the taxpayer because of filing a joint return, or was not a citizen, resident, or national of the US, nor a resident of Canada or Mexico.
b. Relative (closer than cousin) for whom the taxpayer is entitled to a dependency exemption for the taxable year.
c. Parents need not live with head of household, but parents’ household must be maintained by taxpayer (e.g., nursing home).
d. Cannot qualify for head of household status through use of multiple support agreement, or if taxpayer was a nonresident alien at any time during taxable year.
e. Unmarried requirement is satisfied if legally separated from spouse under a decree of separate maintenance, or if spouse was a nonresident alien at any time during taxable year.
Give example of criteria to qualify as dependent
Tax payer provides more than half of the dependent’s support, and dependent’s gross income (which excludes nontaxable Social Security) is less than $3,950.
How is treated contribution to the capital of a corporation by a shareholder?
When a shareholder makes a contribution to the capital of a corporation, no gain or loss is recognized to the shareholder, the corporation has a transferred (carryover) basis for the property, and the shareholder’s original stock basis is increased by the adjusted basis of the additional property contributed
Example:
Ed, the sole stockholder of Looney Corp., paid $70,000 for Looney’s stock in 2010. During 2015, Ed contributed a parcel of land to Looney but was not given any additional stock for this contribution. Ed’s basis for the land was $5,000, and its fair market value was $15,000 on the date of the transfer of title. What is Ed’s adjusted basis for his Looney stock following the contribution of the parcel of land?
Ed’s beginning stock basis of $70,000 is increased by the $5,000 basis for the contributed land, resulting in a stock basis of $75,000.
What are the liabilities of professionnals in a professionnal corporation?
State laws allow professionals to receive most of the benefits of incorporating by allowing them to form professional corporations. The professionals have limited liability for corporate debts but retain liability for their professional acts such as negligence in the audit.
What is the standard that must be established to prove a violation of the antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934?
it must be proven that a false statement or omission of material fact was made, and the individual knew it was false or acted with reckless disregard for the truth. This is equivalent to intentional misconduct.
What are including in the MACRS 5 year property classification?
The MACRS five-year property classification includes autos and taxis, light and heavy general-purpose trucks, calculators, copiers, computers, and peripheral equipment.
What are including in the MACRS 7 year property classification?
The MACRS seven-year property classification includes office furniture, fixtures, and equipment, as well as agricultural machinery and equipment.
What is the ACE adjustment?
The ACE adjustment is equal to 75% of the difference between adjusted current earnings (ACE) and pre-ACE alternative minimum taxable income. The ACE adjustment can be positive or negative, but a negative ACE adjustment is limited in amount to prior years’ net positive ACE adjustments.
Example :
Klaus Corporation, which is not exempt from the alternative minimum tax, reported adjusted current earnings (ACE) and alternative minimum taxable income (AMTI) prior to the alternative minimum tax NOL deduction and ACE adjustments for 2012 through 2014 as follows:
Ace/AMTI
2012 $200,000/100,000
2013 $200,000/240,000
2014 $200,000/350,000
What is the amount of Klaus Corporation’s alternative minimum tax ACE adjustment for 2014?
For 2014 Klaus’ ACE is less than its pre-ACE AMTI leading to a tentative negative ACE adjustment of [($200,000 ? $350,000) × 75%] = $112,500. However, this negative ACE adjustment is allowed only to the extent of $45,000, the amount of Klaus’ net positive adjustment for prior years (i.e., $75,000 for 2012 reduced by a negative $30,000 ACE adjustment for 2013).
When does attachment is obtained for the purchase of a consummer goods
Perfection occurs at the time of attachment whenever a creditor obtains a purchase money security interest in consumer goods.
Can contract on real estate be completed over internet?
The issue of allowing signatures over the Internet has been addressed at both the federal and state levels. A majority of states have now passed laws to allow electronic signatures and invite technology to determine how to determine their validity.
Does a partner has apparent authority to convey a real property held in the partnership name?
if the sale of real estate is within the regular course of a partnership’s business, a partner has apparent authority to convey real property held in the partnership name.
The last endorsement on a negotiable instrument is a special endorsement : is instrument bearer or order?
If the last endorsement on a negotiable instrument is a special endorsement, the instrument is order paper. A special endorsement specifies the person to whom or to whose order it makes the instrument payable.
A check endorsed in blank : bearer or order paper?
A check endorsed in blank is bearer paper.
A check made payable to the order of cash : bearer or order paper?
A check made payable to the order of cash is bearer paper?
Are Trust with an independent trustee that was established for a minor included or excluded in a grantor’s gross estate?.
Trust with an independent trustee that was established for a minor would be excluded from a grantor’s gross estate.
When alternate valuation is elected and distribution occur before alternate valuation date, what is the basis of the stock?
The $240,000 FMV of the stock on date of distribution
Why is a partnership restricted in choosing a tax year?
A partnership generally is restricted in choosing a tax year in order to prevent the deferral of income to partners that could otherwise occur. Thus, a newly formed partnership is required to adopt the same taxable year as is used by its one or more partners owning a more than 50% interest in profits and capital. This insures that there will be no deferral of reporting of income for more than 50% of the partnership’s income.
The following note was executed by Elizabeth Quinton on April 17, year 1, and delivered to Ian Wolf:
(Face) April 17, year 1
On demand, the undersigned promises to pay to the order of Ian Wolf
Seven Thousand and 00/100 Dollars
Elizabeth Quinton signed :Elizabeth Quinton
(Back)
Ian Wolf Signed :Ian Wolf
Pay: George Vernon Samuel Thorn signed :Samuel Thorn Pay: Alan Yule Signed : George Vernon signed : Alan Yule In sequence, beginning with Wolf’s receipt of the note, this note is properly characterized as what type of commercial paper?
This note was originally order paper because it was payable to the order of Ian Wolf. It next became bearer paper when Ian Wolf endorsed it on the back in blank, that is, without specifying any endorsee. When Samuel Thorn endorsed it and wrote “Pay: George Vernon,” it became order paper. Next, when George Vernon endorsed it, it remained as order paper since he designated “Pay: Alan Yule.” The last endorsement by Alan Yule was a blank endorsement which converted it to bearer paper. ->Order, bearer, order, order, bearer.
When does apparent authority exists?
Apparent authority exists when the principal represents the agent to third parties to be his/her agent. In this case, the principal wished to be undisclosed.
What is the result of he filing of the bankruptcy petition?
The filing of the bankruptcy petition acts as an automatic stay of lawsuits by the debtor’s creditors.
To which prohibting infectinos are subject Tax preparers who aid and abet federal tax evasion?
Tax preparers who aid and abet federal tax evasion are subject to both injunction prohibiting them from acting as tax preparers and general federal criminal prosecution
Under the Securities Exchange Act of 1934, in which timeframe is a corporation’s officers (and all other insiders) required to report any changes in ownership of the corporation’s stock?
Under the Securities Exchange Act of 1934, a corporation’s officers (and all other insiders) are required to report any changes in ownership of the corporation’s stock within 15 days.
Under the 1934 Act, the proxy statement, when must the proxy itself, and any proxy soliciting material concerning securities required to be registered under the 1934 Act be filed with and approved by the SEC?
Under the 1934 Act, the proxy statement, the proxy itself, and any proxy soliciting material concerning securities required to be registered under the 1934 Act must be filed with and approved by the SEC before it can be sent to shareholders.
What are the ficuciary duty of an agent?
The fiduciary duties of a gratuitous agent are the same as the duties of an agent who is compensated. Under a gratuitous agent’s duty to account, s/he must account to the principal for profits and everything that rightfully belongs to the principal including the principal’s property. However the agent has a duty not to commingle funds.
When must The federal estate tax return (Form 706) be filed and the tax paid in case of decedent’s death?
The federal estate tax return (Form 706) must be filed and the tax paid within nine months of the decedent’s death, unless an extension of time has been granted.
To what kind of sales is the firm offer rules applying?
The firm offer rule does not apply because this contract does not involve the sale of goods.
What is the condition for te presence of an option in a contract?
An option is present if consideration is given for the opportunity to purchase
Who wins under a notice-type statut
Under a notice-type statute, a subsequent bona fide (good-faith) purchaser, whether s/he records or not, wins over previous purchaser who did not record before that subsequent
Who wins under a race-notice type (notice-race) statute
Under a race-notice type (notice-race) statute, the subsequent bona fide purchaser wins over a previous purchaser only if s/he also records first (i.e., a “race” to file first)
Who wins under a race statute
Under a race statute, the first to record deed wins
What nature must havee the acts of a creditor for the surety’s relase from liability?
The general rule is that a surety is released from liability for acts of the creditor which materially increase the surety’s risk. In this case the failure of the creditor to give notice of the prior embezzlement materially increased the surety’s risk.
