REG Final Flashcards
To which of the following rights is a stockholder of a public corporation entitled?
A. The right to have the corporation issue a new class of stock.
B. The right to a reasonable inspection of corporate records.
C. The right to vote for the election of officers.
D. The right to have annual dividends declared and paid.
Choice “B” is correct. Stockholders have a right to inspect certain corporate records.
Calculate the taxpayer’s qualified business income deduction for a specified service trade or business:
Filing status: Single
Taxable income: $300,000
Net capital gains: $0
Qualified business income (QBI): $50,000
W-2 wages: $10,000
A. $5,000
B. $0
C. $60,000
D. $10,000
Choice “B” is correct. A single taxpayer with taxable income before the QBI deduction of $232,100 or more (2023) is not eligible for the QBI deduction on income from a specified service trade or business (SSTB).
Which of the following defenses would a surety be able to assert successfully to limit the surety’s liability to a creditor?
A. The incapacity of the principal debtor.
B. The incapacity of the surety.
C. A personal defense the principal debtor has against the creditor.
D. A discharge in bankruptcy of the principal debtor.
Choice “B” is correct. A surety may raise his or her own contract defenses to limit his or her liability; thus, the surety’s own incapacity is a defense to the surety promise.
Which of the following statements is correct regarding disclosure of client working papers prepared by a CPA?
A. Working papers may not be disclosed under a federal court subpoena without the client’s permission.
B. Working papers may not be disclosed to any third parties without the client’s permission.
C. Working papers may not be turned over to a CPA quality review team without the client’s permission.
D. Working papers may not be transferred to another accountant without the client’s permission.
Choice “D” is correct. As a general rule, although a CPA owns his or her working papers, because of confidentiality issues, the working papers cannot be turned over to another accountant without the client’s permission.
Which of the following is included within the scope of the secured transactions article of the code?
A. The assignment of a claim for wages.
B. The outright sale of accounts receivable.
C. A landlord’s lien.
D. The sale of chattel paper as a part of the sale of a business out of which it arose.
Choice “B” is correct. Article 9 of the Uniform Commercial Code specifically includes any sale of accounts receivable.
Unemployment tax payable under the Federal Unemployment Tax Act (FUTA), is:
A. A tax-deductible employer’s expense.
B. Payable by all employers.
C. Paid to the Social Security Administration.
D. Deducted from employee wages.
Choice “A” is correct. An employer’s payment under the Federal Unemployment Tax Act (FUTA) is a tax-deductible employer expense.
Which of the following actions between a debtor and its creditors will generally cause the debtor’s release from its debts?
Composition Assignment for the
of creditors benefit of creditors
A. Yes Yes
B. No No
C. Yes No
D. No Yes
Choice “C” is correct. A composition of creditors is an agreement between a debtor and at least two creditors that the creditors will take less than full payment to discharge the debts owed by the debtor to the creditors who participate in the composition agreement. The agreement results in discharge of the debts in full because a contract is created by the cross-promises of the parties (i.e., the cross-promises serve as consideration, so the pre-existing duty rule is avoided). On the other hand, an assignment for the benefit of creditors is a transfer of some or all of a debtor’s property to a trustee who then uses the property to pay the creditors. There is no discharge of debts here because the creditors have not entered into any contract to take less than full payment.
A partnership agreement must be in writing if:
A. The partners reside in different states.
B. The partnership’s purpose cannot be completed within one year of formation.
C. Any partner contributes more than $500 in capital.
D. The partnership intends to own real estate.
Choice “B” is correct. Under the statute of frauds, a partnership agreement must be in writing if by its terms the agreement cannot be completed within one year.
A CPA quickly prepares the financial statements for WSA Co. without noticing that an asset was inadvertently overstated on the balance sheet by 10 percent. An investor who had purchased stock in WSA based on the financial statements lost $10,000 as a result of the investment. The investor claims that WSA committed fraud. Which of the following is true concerning whether fraud was committed?
A. Fraud was committed because the balance sheet is misstated.
B. Fraud was not committed because the investor’s damages are not material.
C. Fraud was not committed because the misstatement was due to negligence.
D. Fraud was committed because the reliance was placed on the statements by the investor.
Choice “C” is correct. Fraud was not committed because the misstatement was due to negligence.
Fraud has five elements:
-A misrepresentation of material fact by the defendant;
-Defendant’s intent to deceive (knowing the statement was false or recklessly making a statement without knowing whether it is true or false);
-Actual and justifiable reliance by the plaintiff on the misrepresentation;
-Defendant’s intent to induce the plaintiff’s reliance on the misrepresentation; and
Damages.
-In this case, fraud was not committed because the defendant-CPA did not intend to deceive the plaintiff-investor or intend to induce the plaintiff-investor’s reliance on the misrepresentation.
Which of the following qualifies as a tax-exempt political organization?
A. Fraternal society or lodge
B. Federal credit union
C. Campaign committee for candidate for public office
D. Veterans’ organization of members of U.S. Armed Forces
Choice “C” is correct. A campaign committee for a candidate for federal, state, or local public office is a type of Section 527 tax-exempt political organization.
Lite-Mart, a C corporation, had a beginning credit balance in its warranty reserve account of $120,000. During the year, Lite-Mart accrued estimated warranty expense of $16,000. At the end of the year, Lite-Mart’s warranty reserve had a $90,000 credit balance. What amount of warranty expense should Lite-Mart deduct?
A. $30,000
B. $14,000
C. $46,000
D. $16,000
Choice “C” is correct. Companies may only deduct the actual amount of cost incurred in meeting their warranty obligations. The actual cost incurred by Lite-Mart in meeting its warranty obligation is calculated as follows:
Beginning warranty reserve 120,000
Add: estimated warranty expense 16,000*
Less: ending warranty reserve (90,000)
Actual warranty costs incurred 46,000
- This number must be calculated and is the amount of expense that must have been recorded in order for the ending warranty reserve to be $90,000, as stated in the problem.
Which of the following statements is correct with respect to penalties?
A. The taxpayer cannot avoid penalties under any circumstances.
B. The taxpayer can generally avoid penalties if he/she acted in good faith and if there was a reasonable basis to support the tax return position.
C. The taxpayer can generally avoid penalties if he/she acted in good faith.
D. The taxpayer can generally avoid penalties if he/she acted in good faith, if there was a reasonable basis to support the tax return position, and if the taxpayer did not have willful neglect.
Choice “D” is correct. The taxpayer can generally avoid penalties if he/she acted in good faith, if there was a reasonable basis to support the tax return position, and if the taxpayer did not have willful neglect.
Which of the following conditions, if any, must a debtor meet to file a voluntary bankruptcy petition under Chapter 7 of the federal Bankruptcy Code?
Insolvency Three or more creditors A. Yes Yes B. No Yes C. No No D. Yes No
Choice “C” is correct. A debtor need not be insolvent to file a voluntary petition under Chapter 7. Although the debtor’s income may not exceed certain specified levels, insolvency is not a requirement. Additionally, there is no requirement of 3 creditors in a voluntary petition. An involuntary petition requires at least 3 creditors to file if the debtor has 12 or more creditors.
Which of the following corporate shareholder rights is enforceable by means of a derivative suit?
A. Protecting preemptive rights.
B. Recovering damages from a third party.
C. Enforcing access to corporate records.
D. Compelling payment of properly declared dividends.
Choice “B” is correct. A derivative action is used when a corporation fails to enforce a right that it has against a third party; the shareholder brings suit on behalf of the corporation. A suit against a third party to enforce the corporation’s rights against the third party is an example of a corporate shareholder right enforceable by derivative suit.
Generally, a corporation’s articles of incorporation must include all of the following, except the:
A. Name of the corporation’s registered agent.
B. Name of each incorporator.
C. Quorum requirements.
D. Number of authorized shares.
Choice “C” is correct. A corporation’s articles of incorporation need not contain any information regarding quorum requirements.
