AICPA Practice Questions With Accurate Answers
Notice of termination of agents is not required to be given to third parties
Correct Ans - Certain events or circumstances, such as the destruction
of the subject matter of the agency, terminate an agency as an operation of
the law and no notice to third parties, actual or constructive, is required.
Document of title Correct Ans - A warehouse receipt is a document
of title that represents goods that are stored in a facility, such as a
warehouse. Although a bill of lading is also a document of title, it is
associated with goods in transit, not goods in storage. Neither an appraisal
nor a receipt is a document of title.
which of the following types of costs are required to be capitalized under
the Uniform Capitalization Rules of Code Sec. 263A? Which are not?
Correct Ans - The Uniform Capitalization Rules require the
capitalization of general, administrative, and engineering costs as well as
overhead associated with holding assets such as storage, repackaging, and
warehousing. Nonmanufacturing costs such as selling, advertising,
marketing, distribution, and research and development costs are expensed
as incurred.
Dale's employer pays 100% of the cost of all employees' group tem life
insurance under a qualified plan. Policy cost is $5 per $1,000 of coverage.
Dale's group term life insurance coverage equals $450,000. Correct Ans
- Group life insurance paid for by an employer is not taxable to the
employee up to a maximum policy amount of $50,000. Premiums paid on
insurance in excess of $50,000 are taxable to the employee. Since Dale's
policy was for $450,000, the premiums on $400,000 would be taxable. At
$5 per $1,000 of insurance, the amount that would be taxable is 400 X $5
or $2,000.
Stock dividend Correct Ans - Stock dividends received are not
taxable. They increase the number of shares held reducing the average tax
basis per share.
Preferential transfer in involuntary bankruptcy Correct Ans - The
payment to Vista was for an unsecured loan and may have given Vista more
than would have been paid in bankruptcy, the payment was made within 90
, days of the filing of the petition and would be set aside as a preferential
transfer.
As an officer of Able, Owen is an insider. A payment to Owen within one
year of the filing of the petition would be set aside as a preferential
transfer.
Offer vs contract Correct Ans - Even when a contract must be in
writing to be enforceable, an offer to enter into a contract may be in writing
or oral to be legitimate.
Reach's acceptance was invalid because it was received after December 20.
Correct Ans - Blake had specified that the offer must be received no
later than December 20. Since Blake's offices were closed on December 20,
Blake could not receive the offer on that date. Reach's offer was properly
delivered to Blake's office on December 20, and would be considered
received on a timely basis.
Check vs draft Correct Ans - Check is a payment on demand.
Liquidated damages Correct Ans - A liquidated damages clause is
one that specifies what damages a party will be entitled to upon a breach of
contract by the other party. Because there is a liquidated damages clause in
the contract that addresses the subject of late completion of the project, the
town can only recover liquidated damages from Mullin.
No notice about penalty risk Correct Ans - A CPA does not need to
inform the taxpayer of the penalty risks of a tax shelter transaction if the
transaction in question is more likely than not to be sustained if
challenged.
Which contract rights are assignable? Correct Ans - Option contract
rights
A corp capital loss carry back or carry forward Correct Ans - Either
the carryback or a carryforward of a long-term capital loss always converts
it to a short-term capital loss for a corporate taxpayer.
State franchise tax liability has accrued during the year and was paid at
March 15,2014 Correct Ans - (A) Fully deductible
Notice of termination of agents is not required to be given to third parties
Correct Ans - Certain events or circumstances, such as the destruction
of the subject matter of the agency, terminate an agency as an operation of
the law and no notice to third parties, actual or constructive, is required.
Document of title Correct Ans - A warehouse receipt is a document
of title that represents goods that are stored in a facility, such as a
warehouse. Although a bill of lading is also a document of title, it is
associated with goods in transit, not goods in storage. Neither an appraisal
nor a receipt is a document of title.
which of the following types of costs are required to be capitalized under
the Uniform Capitalization Rules of Code Sec. 263A? Which are not?
Correct Ans - The Uniform Capitalization Rules require the
capitalization of general, administrative, and engineering costs as well as
overhead associated with holding assets such as storage, repackaging, and
warehousing. Nonmanufacturing costs such as selling, advertising,
marketing, distribution, and research and development costs are expensed
as incurred.
Dale's employer pays 100% of the cost of all employees' group tem life
insurance under a qualified plan. Policy cost is $5 per $1,000 of coverage.
Dale's group term life insurance coverage equals $450,000. Correct Ans
- Group life insurance paid for by an employer is not taxable to the
employee up to a maximum policy amount of $50,000. Premiums paid on
insurance in excess of $50,000 are taxable to the employee. Since Dale's
policy was for $450,000, the premiums on $400,000 would be taxable. At
$5 per $1,000 of insurance, the amount that would be taxable is 400 X $5
or $2,000.
Stock dividend Correct Ans - Stock dividends received are not
taxable. They increase the number of shares held reducing the average tax
basis per share.
Preferential transfer in involuntary bankruptcy Correct Ans - The
payment to Vista was for an unsecured loan and may have given Vista more
than would have been paid in bankruptcy, the payment was made within 90
, days of the filing of the petition and would be set aside as a preferential
transfer.
As an officer of Able, Owen is an insider. A payment to Owen within one
year of the filing of the petition would be set aside as a preferential
transfer.
Offer vs contract Correct Ans - Even when a contract must be in
writing to be enforceable, an offer to enter into a contract may be in writing
or oral to be legitimate.
Reach's acceptance was invalid because it was received after December 20.
Correct Ans - Blake had specified that the offer must be received no
later than December 20. Since Blake's offices were closed on December 20,
Blake could not receive the offer on that date. Reach's offer was properly
delivered to Blake's office on December 20, and would be considered
received on a timely basis.
Check vs draft Correct Ans - Check is a payment on demand.
Liquidated damages Correct Ans - A liquidated damages clause is
one that specifies what damages a party will be entitled to upon a breach of
contract by the other party. Because there is a liquidated damages clause in
the contract that addresses the subject of late completion of the project, the
town can only recover liquidated damages from Mullin.
No notice about penalty risk Correct Ans - A CPA does not need to
inform the taxpayer of the penalty risks of a tax shelter transaction if the
transaction in question is more likely than not to be sustained if
challenged.
Which contract rights are assignable? Correct Ans - Option contract
rights
A corp capital loss carry back or carry forward Correct Ans - Either
the carryback or a carryforward of a long-term capital loss always converts
it to a short-term capital loss for a corporate taxpayer.
State franchise tax liability has accrued during the year and was paid at
March 15,2014 Correct Ans - (A) Fully deductible
