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Practice Test 11 - CPA Taxation & Regulation (REG)

20 questions. Answer them in any order, then submit to see your score and every explanation.

  1. Sara received a 25% interest in the capital and profits of the RST Partnership for services rendered. The fair market value of the partnership interest she received was $40,000. In addition, Sara's share of partnership liabilities at the time she was admitted was $15,000. How much income must Sara recognize, and what is her initial tax basis in the partnership interest?
  2. A company purchases a used machine (7-year property) for $180,000 and places it in service on February 10. The company elects to expense $120,000 of the cost under IRC Section 179. No bonus depreciation is taken. What is the regular MACRS depreciation deduction for the machine in its first year?
  3. A professional services firm is formed as a limited liability company with three members. The operating agreement appoints one member to manage daily operations while the other members remain primarily investors. What is a key characteristic of a limited liability company regarding management structure?
  4. Under the Revised Uniform Partnership Act (RUPA), what is the default rule for sharing profits and losses in a general partnership?
  5. What is the maximum amount of loss that Sarah can deduct on her personal income tax return for the year?
  6. A small business owner is deciding whether to form a corporation. The owner understands that corporate income is generally taxed at the entity level and that distributions may be taxed again to shareholders. What are the tax implications of forming a corporation in this context?
  7. Under 11 U.S.C. Section 544, what is the 'strong-arm clause' and how does it benefit the bankruptcy trustee?
  8. Under the at-risk rules of Section 465 as applied to S corporation shareholders, a shareholder's at-risk amount includes which of the following?
  9. Metro LP has two partners, A1 (general partner) and B1 (limited partner). The partnership agreement provides that profits and losses are allocated based on capital contributions. At formation, A1 contributed $30,000 and B1 contributed $70,000. In the current year, Metro has an ordinary business loss of $40,000 and no other items. What is the correct allocation of losses among partners under IRC Section 704(a) based on the agreement?
  10. A corporation purchased equipment for $310,000 and claimed $205,000 of accumulated depreciation. The corporation sold the equipment for $120,000 and paid $6,000 in selling costs. Based on the provided details, what is the taxpayer's gain or loss on disposition?
  11. A client cannot obtain exact inventory figures before the tax filing deadline and asks the CPA to use an estimated amount on the return. Under SSTS No. 4, which course of action is most consistent with the standard?
  12. Dunmore Corp accrues a bonus payable to its employees at year-end December 31. Under the accrual method, when must the bonus be paid for Dunmore to deduct it in the current year?
  13. A biotech company (business entity) contracts to sell a standard, widely available laboratory centrifuge (sales contract) to another company (business entity) for $9,000. The seller breaches, and the buyer can purchase an identical centrifuge from another vendor for $9,200. The buyer sues. What is the likely remedy for this breach?
  14. Under the AICPA Code of Professional Conduct, which of the following describes the integrity principle?
  15. Torrington Co. has a general business credit carryforward of $30,000 that was generated in Year 1. In Year 5, Torrington has no current-year general business credit but has unused carryforward. In Year 5, it is Year 7 of the 20-year carryforward period for the Year 1 credit. If Torrington does not use the Year 1 credit by the end of Year 21, what happens to it?
  16. Under Section 1033, what is the treatment when a taxpayer realizes a loss because insurance proceeds are less than the adjusted basis of destroyed business property?
  17. A taxpayer paid $15,000 in state income taxes and $8,000 in real property taxes during the year. These were deducted as itemized deductions on Schedule A, subject to the $10,000 SALT cap. For AMT purposes, how are these taxes treated?
  18. Under Circular 230 Section 10.29, a practitioner who has a conflict of interest must do which of the following to continue representing both clients?
  19. Renata and Silvio form a general partnership, each contributing $50,000 cash. The partnership agreement allocates profits and losses equally. After two years, Renata sells her entire 50% interest to Tomas for $80,000. Which of the following correctly describes the tax consequences to Renata?
  20. A nonprofit school turns a profit and pays its surplus to the founder. Status?

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