Strayer ACC565 midterm exam 2015

Question 1

When a taxpayer contacts a tax advisor requesting advice as to the most
advantageous way to dispose of a stock, the tax advisor is faced with
Answer

a restricted-fact situation.

a closed-fact situation.

an open-fact situation.

a recognized-fact situation.

Question 2

During the course of an audit, a CPA discovers an error in a prior return.
According to the Statements on Standards for Tax Services, the CPA
should
Answer

ask the client for permission to disclose the
error to the IRS.

withdraw from the engagement.

inform the IRS of the error, regardless of
whether the client grants permission.

correct the error in the current year’s tax
return.

Question 3

A Technical Advice Memorandum is usually
Answer

an internal IRS document describing alternative
legislative proposals.

part of a Tax Court decision.

requested by the taxpayer before entering into a
taxable transaction.

issued by the national office in response to an
audit request.

Question 4

Regulations are
Answer

equal in authority to legislation.

equal in authority to legislation if statutory.

presumed to be valid and to have almost the same
weight as the IRC.

equal in authority to legislation if
interpretative.

Question 5

In accordance with the rules that apply to corporate formation, which
one of the following features does not make an issue of
preferred stock “nonqualified”?
Answer

The shareholder can require the corporation to
redeem the stock.

The dividend rate on the stock may not vary with
interest rates, commodity prices, or other similar indices.

The corporation is either required to redeem the
stock or is likely to exercise a right to redeem the stock.

The stock is limited and preferred as to
dividends.

Question 6

The transferor’s holding period for any boot property received in a Sec.
351 stock exchange
Answer

includes the holding period for the boot
transferred.

begins on the day after the exchange.

begins on the day of the exchange.

is the same as the holding period of the stock
received in the exchange.

Question 7

Rose and Wayne form a new corporation. Rose contributes cash for 85% of
the stock and Wayne contributes services for 15% of the stock. The tax effect
is
Answer

Rose and Wayne must recognize their realized
gains, if any.

Wayne must report the FMV of the stock received
as capital gain.

Rose and Wayne are not required to recognize
their realized gains.

Wayne must report the FMV of the stock received
as ordinary income.

Question 8

Which of the following is an advantage of a sole proprietorship over
other business forms?
Answer

tax-exempt treatment of fringe benefits

the deduction for compensation paid to the owner

low tax rates on dividends

ease of formation

Question 9

Trail Corporation has gross profits on sales of $140,000 and deductible
expenses of $180,000. In addition, Trail has a net capital gain of $60,000.
Trail’s taxable income is
Answer

a $20,000 loss.

a $40,000 loss.

$60,000.

$20,000.

Question 10

Which of the following results in a deferred tax asset?
Answer

Revenue or gains are recognized earlier for book
purposes than for tax purposes.

Operating loss or tax credit carryforwards exist.

Tax basis of an asset is less than its book.

Expenses are deductible earlier for tax purposes
than for book purposes.

Question 11

Dallas Corporation, not a dealer in securities, realizes taxable income
of $60,000 from the operation of its business. Additionally, in the same year,
Dallas realizes a long-term capital loss of $10,000 from the sale of marketable
securities. If the corporation realizes no other capital gains or losses, what
is the proper treatment for the $10,000 long-term capital loss on the tax
return?
Answer

Use $3,000 of the loss to reduce taxable income
and carry $7,000 of the long-term capital loss forward for five years.

Use $6,000 of the loss to reduce taxable income
and carry $4,000 of the long-term capital loss forward for five years.

Use $10,000 of the long-term capital loss to
reduce taxable income.

Carry the $10,000 long-term capital loss back
three years as a short-term capital loss, then forward five years.

Question 12

Which of the following is not a condition that permits
a stock redemption to be treated as a sale?
Answer

It provides funds for payment of income taxes.

It is not essentially equivalent to a dividend.

The redemption is substantially disproportionate.

The redemption completely terminates the
shareholder’s interest.

Question 13

An individual shareholder owns 3,000 shares of Baxter Corporation common
stock with a basis of $10 per share. She receives a nontaxable 5% stock
dividend. The basis per share of the common stock after the stock dividend is
Answer

$9.00.

$9.50.

$9.52.

$10.00.

Question 14

The gross estate of a decedent contains $2,000,000 cash and 100% of
Davis Corporation stock worth $600,000. Funeral and administrative expenses and
state death taxes allowable as estate tax deductions amount to $400,000. The
estate owes no other liabilities. The decedent’s Davis stock can be
Answer

redeemed to the extent of the death taxes and the
estate’s funeral and administrative costs with sale or exchange treatment.

redeemed with dividend treatment.

redeemed in full with sale or exchange treatment
only if the proceeds are used to pay the death taxes and funeral and
administrative costs.

redeemed to the extent of the death taxes and the
funeral and administrative costs with sale or exchange treatment only if the
proceeds are used to pay the death taxes and funeral and administrative
costs.

Question 15

Jack Corporation redeems 200 shares of its stock for $100,000 from
Junior, who inherited the stock from his father, Ken. The stock’s FMV on Ken’s
date of death was $90,000. Ken’s basis in the stock was $40,000. Jack
Corporation had an E&P balance of $300,000. If the redemption qualifies
under Sec. 303, Junior will
Answer

recognize a capital gain of $10,000.

recognize a capital gain of $60,000.

recognize $100,000 in dividend income.

recognize dividend income of $50,000 and a
capital gain of $10,000.

Question 16

How does the deduction for U.S. production activities affect AMTI?
Answer

The computation of qualified production
activities is the same for taxable income and AMTI.

The computation of qualified production
activities is based on qualified production activities income for AMTI.

The computation of qualified production
activities is based on AMTI before the deduction for qualified production
activities.

The computation of qualified production
activities is based on the lesser of qualified production activities income
or AMTI before the deduction for qualified production activities.

4 points
Question 17

Which of the following items are tax preference items for purposes of
arriving at alternative minimum taxable income?
Answer

excess intangible drilling costs on oil and gas
properties

interest income earned on federal obligations

all depreciation claimed on pre-1987 real
property acquisitions

excess of net long-term capital gains over
short-term capital losses

Question 18

The accumulated earnings tax does not apply to
corporations that
Answer

have more than one class of stock.

are personal holding companies.

are members of a controlled group.

are closely held corporations.

Question 19

When using the Bardahl formula, an increase in accounts payable (while
holding purchases and operating expenses constant) has which of the following
effects on the working capital requirements?
Answer

increase

decrease

no effect

increase, decrease, or no effect, depending on
other factors

Question 20

Lake City Corporation owns all of the stock in Columbia Corporation.
Pursuant to a plan of complete liquidation, Columbia distributes land having a
$500,000 FMV and a $200,000 basis to Lake City. Lake City’s basis in the land
will be
Answer

0.

$200,000.

$500,000.

%700,000.

Question 21

The general rule for tax attributes of liquidating corporations is
Answer

they disappear when the liquidation is complete.

they carry over for five years.

they disappear only for controlled subsidiary
corporations.

they carry over for an indefinite period of time.

Question 22

The stock of Cooper Corporation is 70% owned by Carole and 30% owned by
Carole’s brother, Chris. During 2013, Chris transferred property (basis of
$100,000 and FMV of $120,000) as a contribution to the capital of Cooper.
During February 2014, Cooper adopted a plan of liquidation and subsequently
made a pro rata distribution of the property back to Carole and Chris. At the
time of the liquidation, the property had an FMV of $80,000. What amount of
loss can be recognized by Cooper on the distribution of property?
Answer

$0

$6,000

$12,000

$20,000

Question 23

American Corporation acquires the noncash assets of Utech Corporation in
exchange for $700,000 of its voting stock plus $50,000 of cash. Utech
Corporation assets are worth $750,000. Utech Corporation does not distribute
the stock and cash but instead holds the stock as an investment. Utech will use
the American cash along with the cash it retained to start a new business. The
transaction can be classified as a
Answer

Type A reorganization.

Type B reorganization.

Type C reorganization.

The transaction does not qualify as a tax-free
reorganization.

Question 24

Jersey Corporation purchased 50% of Target Corporation’s single class of
stock on June 1 of this year. They purchased an additional 40% on November 20
of this year. The Sec. 338 election must be made on or before
Answer

June 30 of this year.

November 30 of this year.

August 15 of next year.

June 30 of next year.

Question 25

Acquiring Corporation acquires all of the stock of Target Corporation in
a Type B (stock-for-stock) reorganization. Both corporations have always filed
separate tax returns. Which one of the following statements regarding the
acquisition is correct?
Answer

Acquiring and Target Corporations can elect to
file a consolidated tax return.

Acquiring and Target Corporations must file a
consolidated tax return.

Acquiring Corporation assumes all of the tax
attributes of Target Corporation.

Acquiring Corporation must step up or step down
the basis of the Target Corporation’s assets to their FMV on the acquisition
date?