Aia Released Questions Reg 2015 Moderate t143g

REG 2015 AIA Released Questions Testlet Level: Moderate

Please Note: These questions are released to the A Review providers with the letter answer only (i.e. no explanation given). This document contains copyrighted material from the American Institute of Certified Public ants and is licensed to NINJA A Review for use by its customers only. Answers are on Page 11. 1. The partnership of Rodgers & Higgs, As, performed audits of Alt Corp., a publicly-traded company, for the past several years. After issuing the current year's audit report, the CFO of Alt confessed to having committed fraud against Alt. Under which of the following statutes would the investors most likely bring suit against Rodgers & Higgs?

Securities Act of 1933, if they can prove ordinary negligence. Securities Act of 1933, if they can prove gross negligence. Securities Exchange Act of 1934, if they can prove ordinary negligence. Securities Exchange Act of 1934, if they can prove scienter.

REG 2015: Moderate 1 www.another71.com

2. In which of the following circumstances would a tax return preparer be prohibited from disclosing a client's tax return information?

The information will be needed for a peer review. The information will be provided in response to a court order. The information will be provided to a section 501(c)(3) charity. The information will be used to prepare state or local tax returns.

3. Under the Statements on Standards for Tax Services, what is a A's responsibility for ing information furnished by the taxpayer or third parties?

A A need not make additional inquiries if the information furnished appears to be incorrect, incomplete, or inconsistent with other facts known to the A. A A need not consider implications of information furnished if the information comes directly from a third party. A A may, in good faith, rely on information furnished by the taxpayer or by third parties without verification. A A should not refer to the taxpayer's previous tax returns unless the returns report transactions that affect the current tax period.


4. Which of the following contractual assignments is prohibited?

The right to receive royalties. The right to be insured under a liability insurance policy. The right to receive installment payments. The rights under an option contract.

5. Under which of the following circumstances would a promoter be relieved of personal liability on contracts entered into while engaged in forming a corporation?

When the bylaws of the corporation expressly adopt all preincorporation contracts without novation. When the corporation unknowingly accepts the benefits of the contract. When the contracting party verbally agrees to relieve the promoter. When the third party, the corporation, and the promoter enter into an agreement to substitute the corporation for the promoter.


6. Under the Negotiable Instruments Article of the UCC, which of the following defenses could be successfully asserted by the drawer of a draft against a holder in due course of that draft?

The drawer issued the draft to the payee because of the payee's fraudulent representations concerning the value of the property the payee was transferring to the drawer in return for the draft. The drawer issued the draft as a gift to the original payee, without the drawer receiving any consideration or value for it. The drawer was discharged from the obligation in bankruptcy after the issuance of the draft. The drawer issued the draft as bearer paper, and it was transferred by the original holder to the next holder without an endorsement. 7. The two equal shareholders of a C corporation are thinking of filing an election to have the company treated as an S corporation. Which of the following consequences is an advantage of this election?

The corporation's net operating loss carryovers from prior years are immediately deductible by the shareholders. The corporation's tax-free fringe benefits for the shareholders will be deductible by the corporation. The shareholders of the S corporation will be taxed only on distributions from the corporation. The corporation's capital losses can be claimed on the tax returns of the shareholders.


8. Benson exchanged a van, used exclusively for business and with an adjusted basis of $100,000, for a new van with a fair market value of $120,000 and received $5,000 in cash. What amount of gain did Benson recognize from the transaction?

$0 $5,000 $20,000 $25,000

9. Which of the following items qualifies for treatment under Section 1231 (Property Used in the Trade or Business and Involuntary Conversions)?

Copyright used in the business, held for 10 years. Building used in the business, held for six months. Machinery used in the business, held for eleven months. Computer used in the business, held for four years.


10. A personal services corporation may deduct payments made to owneremployees only in the year in which the

Corporation is formed. Expense is accrued on the books and records of the corporation. Corporation makes a valid S election. Owner-employee includes it in income.

11. An individual taxpayer reports the following information: U.S. Treasury bond income

$ 100

Municipal bond income

200

Rental income

500

Investment interest expense

1,000

What amount of investment interest can the taxpayer deduct in the current year? $100 $300 $800 $1,000


12. As a result of a divorce, a taxpayer received the following during the current year: Cash from the property settlement

$100,000

Child

12,000

Alimony payments

30,000

What amount, if any, must be included in gross income for the current year? $0 $30,000 $130,000 $142,000

13. Thompson's spouse died in year 1. Thompson did not remarry in year 2 and lived alone the entire year. What is Thompson's year 2 filing status?

Married filing tly. Surviving spouse. Head of household. Single.


14. Paige, a 25% shareholder in an S corporation, had a stock basis of $10,000 at the beginning of the year. The corporation had ordinary income of $200,000 for the year. There were no separately stated items. Paige received wages from the corporation of $25,000 and a distribution of $30,000. What was Paige's basis in the stock at year end?

$0 $5,000 $30,000 $35,000

15. Kline and Salomon form the KS Partnership as 50/50 partners. Kline contributes equipment that has a fair market value of $60,000 and an adjusted basis of $45,000. In addition, the equipment is subject to a $10,000 loan that KS Partnership is assuming. What amount represents Kline's initial basis in the partnership?

$35,000 $40,000 $45,000 $60,000


16. Parent company X and subsidiary company Y file a calendar year consolidated federal income tax return. Company X reported a $120,000 tax loss, which included a $10,000 dividend from Y. Company Y reported $140,000 of taxable income, which included $30,000 of dividends received from less than 20% owned stock investments. Neither company took into any applicable dividends received deduction. What is the group's consolidated tax loss for the year?

($1,000) ($4,000) ($11,000) ($20,000)

17. Which of the following is a disadvantage of a revocable trust?

The grantor will be subject to gift taxes on the transfer of property to the trust. The trust assets are subject to being probated upon the death of the grantor. The grantor loses power to control the trust funds for federal estate tax purposes. The trust is included in the gross estate of the grantor.


18. IRC Section 263A requires the capitalization of certain indirect costs related to inventory when a qualifying business is manufacturing tangible personal property. Which of the following costs is not required to be capitalized as part of this adjustment?

Marketing. Recruiting. Payroll. Securities services.

19. A company terminated its S corporation status for the current tax year. When can the company reelect S status?

Immediately. Third year from the current tax year. Fifth year from the current tax year. Cannot reelect in future.


20. The A was preparing the financial statement for a limited liability company. To which of the following would the A's report be addressed?

Member. Shareholder General partner. Limited partner.

Answers: 1. The partnership of Rodgers & Higgs, As, performed audits of Alt Corp., a publicly-traded company, for the past several years. After issuing the current year's audit report, the CFO of Alt confessed to having committed fraud against Alt. Under which of the following statutes would the investors most likely bring suit against Rodgers & Higgs?

Securities Act of 1933, if they can prove ordinary negligence. Securities Act of 1933, if they can prove gross negligence. Securities Exchange Act of 1934, if they can prove ordinary negligence. Securities Exchange Act of 1934, if they can prove scienter.


2. In which of the following circumstances would a tax return preparer be prohibited from disclosing a client's tax return information?

The information will be needed for a peer review. The information will be provided in response to a court order. The information will be provided to a section 501(c)(3) charity. The information will be used to prepare state or local tax returns.

3. Under the Statements on Standards for Tax Services, what is a A's responsibility for ing information furnished by the taxpayer or third parties?

A A need not make additional inquiries if the information furnished appears to be incorrect, incomplete, or inconsistent with other facts known to the A. A A need not consider implications of information furnished if the information comes directly from a third party. A A may, in good faith, rely on information furnished by the taxpayer or by third parties without verification. A A should not refer to the taxpayer's previous tax returns unless the returns report transactions that affect the current tax period.


4. Which of the following contractual assignments is prohibited?

The right to receive royalties. The right to be insured under a liability insurance policy. The right to receive installment payments. The rights under an option contract.

5. Under which of the following circumstances would a promoter be relieved of personal liability on contracts entered into while engaged in forming a corporation?

When the bylaws of the corporation expressly adopt all preincorporation contracts without novation. When the corporation unknowingly accepts the benefits of the contract. When the contracting party verbally agrees to relieve the promoter. When the third party, the corporation, and the promoter enter into an agreement to substitute the corporation for the promoter.


6. Under the Negotiable Instruments Article of the UCC, which of the following defenses could be successfully asserted by the drawer of a draft against a holder in due course of that draft?

The drawer issued the draft to the payee because of the payee's fraudulent representations concerning the value of the property the payee was transferring to the drawer in return for the draft. The drawer issued the draft as a gift to the original payee, without the drawer receiving any consideration or value for it. The drawer was discharged from the obligation in bankruptcy after the issuance of the draft. The drawer issued the draft as bearer paper, and it was transferred by the original holder to the next holder without an endorsement. 7. The two equal shareholders of a C corporation are thinking of filing an election to have the company treated as an S corporation. Which of the following consequences is an advantage of this election?

The corporation's net operating loss carryovers from prior years are immediately deductible by the shareholders. The corporation's tax-free fringe benefits for the shareholders will be deductible by the corporation. The shareholders of the S corporation will be taxed only on distributions from the corporation. The corporation's capital losses can be claimed on the tax returns of the shareholders.


8. Benson exchanged a van, used exclusively for business and with an adjusted basis of $100,000, for a new van with a fair market value of $120,000 and received $5,000 in cash. What amount of gain did Benson recognize from the transaction?

$0 $5,000 $20,000 $25,000

9. Which of the following items qualifies for treatment under Section 1231 (Property Used in the Trade or Business and Involuntary Conversions)?

Copyright used in the business, held for 10 years. Building used in the business, held for six months. Machinery used in the business, held for eleven months. Computer used in the business, held for four years.


10. A personal services corporation may deduct payments made to owneremployees only in the year in which the

Corporation is formed. Expense is accrued on the books and records of the corporation. Corporation makes a valid S election. Owner-employee includes it in income.

11. An individual taxpayer reports the following information: U.S. Treasury bond income

$ 100

Municipal bond income

200

Rental income

500

Investment interest expense

1,000

What amount of investment interest can the taxpayer deduct in the current year? $100 $300 $800 $1,000


12. As a result of a divorce, a taxpayer received the following during the current year: Cash from the property settlement

$100,000

Child

12,000

Alimony payments

30,000

What amount, if any, must be included in gross income for the current year? $0 $30,000 $130,000 $142,000

13. Thompson's spouse died in year 1. Thompson did not remarry in year 2 and lived alone the entire year. What is Thompson's year 2 filing status?

Married filing tly. Surviving spouse. Head of household. Single.


14. Paige, a 25% shareholder in an S corporation, had a stock basis of $10,000 at the beginning of the year. The corporation had ordinary income of $200,000 for the year. There were no separately stated items. Paige received wages from the corporation of $25,000 and a distribution of $30,000. What was Paige's basis in the stock at year end?

$0 $5,000 $30,000 $35,000

15. Kline and Salomon form the KS Partnership as 50/50 partners. Kline contributes equipment that has a fair market value of $60,000 and an adjusted basis of $45,000. In addition, the equipment is subject to a $10,000 loan that KS Partnership is assuming. What amount represents Kline's initial basis in the partnership?

$35,000 $40,000 $45,000 $60,000


16. Parent company X and subsidiary company Y file a calendar year consolidated federal income tax return. Company X reported a $120,000 tax loss, which included a $10,000 dividend from Y. Company Y reported $140,000 of taxable income, which included $30,000 of dividends received from less than 20% owned stock investments. Neither company took into any applicable dividends received deduction. What is the group's consolidated tax loss for the year?

($1,000) ($4,000) ($11,000) ($20,000)

17. Which of the following is a disadvantage of a revocable trust?

The grantor will be subject to gift taxes on the transfer of property to the trust. The trust assets are subject to being probated upon the death of the grantor. The grantor loses power to control the trust funds for federal estate tax purposes. The trust is included in the gross estate of the grantor.


18. IRC Section 263A requires the capitalization of certain indirect costs related to inventory when a qualifying business is manufacturing tangible personal property. Which of the following costs is not required to be capitalized as part of this adjustment?

Marketing. Recruiting. Payroll. Securities services.

19. A company terminated its S corporation status for the current tax year. When can the company reelect S status?

Immediately. Third year from the current tax year. Fifth year from the current tax year. Cannot reelect in future.


20. The A was preparing the financial statement for a limited liability company. To which of the following would the A's report be addressed?

Member. Shareholder General partner. Limited partner.


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