Reg6 50 Multiple Choice Questions

Reg6
50 Multiple Choice Questions
1. The federal Fair Debt Collection Practices Act prohibits a debt collector from
engaging in unfair practices. Under the Act, a debt collector generally can be
prevented from
A. Communicating with a debtor who is represented by an attorney.
B. Contacting a third party to ascertain a debtors location.
C. Commencing a lawsuit to collect a debt.
D. Continuing to collect a debt.
ANSWER: A
This answer is correct. The requirement is to identify the act that a debt collector
is prevented from performing. Once a debtor is represented by an attorney, the debt
collector should communicate with that attorney rather than communicating with the
debtor. Therefore, this answer is correct.
2. During the current year, a trust reports the following information:

Dividends
Interest from corporate bonds
Tax-exempt interest from state bonds
Capital gain (allocated to corpus)
Trustee fee (allocated to corpus)
What is the trusts accounting income?
$10,000
12,000
4,000
2,000
6,000
A. $34,000
B. $28,000
C. $22,000
D. $26,000
ANSWER: D
This answer is correct. The requirement is to determine a trusts accounting income.
In fiduciary accounting, all receipts and disbursements are classified as either
income or corpus (principal). For example, interest on state bonds may constitute
accounting income even though not included in gross income for tax purposes. Other
items, for example capital gain, would be included in gross income for tax purposes
but may be classified as corpus (principal) for fiduciary accounting purposes. Any
items allocated to corpus (principal) are not included in the computation of a
trusts accounting income. Here, the trusts accounting income includes the $10,000
of dividends, $12,000 of interest from corporate bonds, and $4,000 of tax-exempt
interest from state bonds, but excludes the capital gain and trustee fee which are
allocated to corpus (principal).
3. Watson Corp., a calendar-year domestic C corporation, is not a personal holding

company. For purposes of the accumulated earnings tax, Watson has accumulated
taxable income for 2012. Which step(s) can Watson take to eliminate or reduce any
Page 1
Reg6 50 Multiple Choice Questions

2012 accumulated earnings tax?
I.
Demonstrate that the "reasonable needs" of its business require the
retention of all or part of the 2012 accumulated taxable income.
II.
Pay dividends by March 15, 2013.
A. I only.
B. II only.
C. Neither I nor II.
D. Both I and II.
ANSWER: D
This answer is correct. The requirement is to determine which step(s) Watson Corp.
can take to eliminate or reduce any 2012 accumulated earnings tax (AET). The AET is
a penalty tax that can be imposed (in addition to regular income tax) on a
corporation if it accumulates earnings in excess of reasonable business needs. To
avoid the AET, Watson can demonstrate that the reasonable needs of its business
require the retention of all or part of the 2012 accumulated taxable income.
Additionally, Watson can reduce its accumulated taxable income by paying a dividend
to its shareholders. For this purpose, any dividends paid within the first 2 1/2
months of the tax year are treated as if paid on the last day of the preceding tax
year. Thus, Watsons payment of dividends by March 15, 2013, would reduce its
exposure to the AET for 2012.
4. A taxpayer sold for $200,000 equipment that had an adjusted basis of $180,000.
Through the date of the sale, the taxpayer had deducted $30,000 of depreciation. Of
this amount, $17,000 was in excess of straight-line depreciation. What amount of
gain would be recaptured under Section 1245 (Gain from Dispositions of Certain
Depreciable Property)?
A. $17,000
B. $30,000
C. $20,000
D. $13,000
ANSWER: C
This answer is correct. The requirement is to determine the amount of gain that
would be recaptured under Sec. 1245 upon the sale of equipment. Sec. 1245
recaptures gain as ordinary income on the disposition of Sec. 1245 property to the
extent of all depreciation (including straight-line) previously deducted. However,
the amount of gain recaptured cannot exceed the amount of recognized gain. Here,
the recapture is limited to the recognized gain of $20,000.
Selling price
Cost
Depreciation
Adjusted basis
Recognized gain
$200,000
$210,000
(30,000)
(180,000)
$ 20,000
Page 2
Reg6
5. Ingram Corporation had taxable income of $280,000 before deducting charitable

conCNC Metalbutions for its tax year ended December 31, 2012, but after deducting a
dividends-received deduction of $34,000. Ingram made cash conCNC Metalbutions of
$35,000 to charitable organizations. How much can Ingram deduct as conCNC
Metalbutions for 2012?
A. $31,400
B. $32,000
C. $35,000
D. $28,000
ANSWER: A
This answer is correct. Since charitable conCNC Metalbutions (CC) are limited to
10% of taxable income (TI) before the conCNC Metalbutions and dividends-received
deduction (DRD), the DRD of $34,000 must be added back to TI to arrive at the conCNC
Metalbutions base against which to apply the 10% limitation:
TI before CC
Add back DRD
TI before CC and DRD
% limitation
Allowable conCNC Metalbutions
$ 280,000
34,000
$ 314,000
10%
$ 31,400
6. On January 8, 2013, Richard Bannerman, age 52 and single, sold for $320,000 his
personal residence which had been his principal residence for the past 20 years and
had an adjusted basis of $60,000. On May 1, 2013, he purchased a new residence for
$420,000. For 2013, Bannerman should recognize a gain on the sale of his residence
of
A. $ 10,000
B. $135,000
C. $ 15,000
D. $0
ANSWER: A
This answer is correct. An individual may exclude from income up to $250,000 of
gain that is realized on the sale or exchange of a residence, if the individual
owned and occupied the residence as a principal residence for an aggregate of at
least 2 of the 5 years preceding the sale or exchange. Since Bannerman qualifies to
exclude $250,000 of his $260,000 realized gain, Bannerman must recognize a gain of
$10,000.
7. On July 1, A, B, C, and D purchased a parcel of land as tenants in common each

owning an equal share. On July 10, A died leaving a will. Subsequently, B died
intestate. If C sells her interest in the land to X,
A. D and X will each own a 1/2 interest in the land.
Page 3

B. D and X will each own a 1/3 interest in the land.
C. D and X will each own a 1/4 interest in the land.
D. The tenancy in common will terminate.
ANSWER: C
This answer is correct because the death of neither A nor B will have an effect on C
and Ds property interest as there is no right of survivorship under a tenancy in
common. Therefore, were X to purchase Cs interest, s/he could only receive a 1/4
interest in the land.
8. Holmgren Corp. has $270,000 of outstanding accounts receivable. On March 10,

Holmgren assigned a $30,000 account receivable due from Kessel, one of Holmgrens
customers, to Rubino Bank for value. On March 30, Kessel paid Holmgren the $30,000.
On April 5, Rubino notified Kessel of the March 10 assignment from Holmgren to
Rubino. Rubino is entitled to collect $30,000 from
A. Kessel only.
B. Neither Holmgren nor Kessel.
C. Holmgren only.
D. Either Holmgren or Kessel.
ANSWER: C
This answer is correct. A debtor who does not have knowledge of a creditors
assignment of his/her right to receive payment can extinguish all of his/her
liability regarding the debt by paying the assignor. It is the duty of the assignee
to notify the debtor of the assignment. In addition, an assignor who receives
payment from the debtor after the assignment has occurred will always be liable to
the assignee for payment received. In this case, since Kessel paid the debt owed to
Holmgren prior to receiving notice of the assignment, he/she has extinguished all
liability on the debt. However, Holmgren is liable to Rubino for payment received.
Consequently, Rubino is entitled to collect $50,000 from Holmgren only.
9. Which of the following decreases stockholder equity?

A. Acquisition of assets in a cash transaction.
B. DisCNC Metalbution to owners.
C. Issuance of stock.
D. Investments by owners.
ANSWER: B
This answer is correct. The requirement is to identify the item that decreases
stockholders equity. This answer is correct because disCNC Metalbution to owners
(dividends) decreases stockholders equity.
10. Which of the following disqualifies an entity from an S corporation election?

A. An estate shareholder.
B. A 501(c)(3) exempt organization shareholder.
Page 4

C. Seventy-seven individual shareholders (including four married couples).
D. A nonresident alien shareholder.
ANSWER: D
This answer is correct. Nonresident aliens cannot be shareholders in an S
corporation.
11. In 2013, Mandalay, who is single, gave an ouCNC Metalght gift of $15,000 to a
friend, Mike, who needed the money to pay tuition at an accredited university. In
filing his 2013 gift tax return, Mandalay was entitled to a maximum exclusion of
A. $12,000
B. $13,000
C. $0
D. $15,000
ANSWER: B
This answer is correct. The requirement is to determine the maximum exclusion
available on Mandalays 2013 gift tax return for the $15,000 gift to Mike who needed
the money to pay university tuition. The first $14,000 ($13,000 for 2012) of gifts
made to a donee during the calendar year (except gifts of future interests) is
excluded in determining the amount of the donors taxable gifts for 2013. Note that
Mandalay does not qualify for the unlimited exclusion for tuition paid on behalf of
a donee, because Mandalay did not pay the $15,000 as tuition to an educational
organization on Mikes behalf.
12. During 2012 Mary Stack paid the following expenses:

Prescription drugs
$470
Aspirin and over-the-counter cold capsules
130
Hospitals and doctors (net of insurance reimbursements under plan paid for by her
employer)
700
Premiums for a policy to reimburse her for lost income due to illness
350
What is the total amount of medical expenses (before application of any limitation
rules that would enter into the calculation of itemized deductions) on Stacks 2012
tax return?
A. $1,300
B. $1,650
C. $1,170
D. $1,520
ANSWER: C
This answer is correct.
calculated as follows:
Stacks total deductible medical expenses would be

Page 5
Reg6
Prescription drugs
Hospitals and doctors
Total
$ 470
700
$1,170
The lost-income policy does not qualify as medical insurance, and the
nonprescription drugs do not qualify as deductible medical expenses.
13. Margo owes a total of $50,000 to eight unsecured creditors and one fully secured
creditor. Rusk is one of the unsecured creditors and is owed $14,800. Rusk has filed
a petition against Margo under the liquidation provisions of the Bankruptcy Code.
Margo has been unable to pay Margos debts as they become due and Margos
liabilities exceed Margos assets. Margo has filed the papers that are required to
oppose the bankruptcy petition. Which of the following statements is correct?
A. The petition will be granted because Margos liabilities exceed Margos assets.
B. The petition will be dismissed because three unsecured creditors must join in the
filing of the petition.
C. The petition will be dismissed because the secured creditor failed to join in the
filing of the petition.
D. The petition will be granted because Margo is unable to pay Margos debts as they
become due.
ANSWER: D
This answer is correct. Under an involuntary bankruptcy petition, if there are fewer
than 12 creditors, a single creditor may file the petition as long as his/her claim
is $14,425 in excess of any security s/he may hold. If the involuntary petition in
bankruptcy is not contested, it will automatically result in the entry of an order
for relief by the bankruptcy court. However, if the petition is contested, the
creditor(s) are required to prove either that the debtor is not paying his/her debts
as they mature, or that during the 120 days preceding the filing of a petition, a
custodian took possession of the debtors property. In this situation, there are
fewer than 12 creditors which enables Rusk, as an unsecured creditor owed more than
$14,425, to file a bankruptcy petition against Margo. Even though Margo has
contested this bankruptcy petition, it will be granted since Rusk can prove Margo is
unable to pay Margos debts as they mature.
14. In January 2012, Martin and Louis formed a partnership with each conCNC
Metalbuting $75,000 cash. The partnership agreement provided that Martin would
receive a guaranteed payment of $20,000 and that partnership profits and losses
(computed after deducting Martins guaranteed payment) would be shared equally. For
the year ended December 31, 2012, the partnerships operations resulted in a loss of
$18,000 after deducting the $20,000 guaranteed payment made to Martin. The
partnership had no outstanding liabilities as of December 31, 2012. What is the
Page 6

amount of Martins basis for his partnership interest as of December 31, 2012?
A. $76,000
B. $86,000
C. $46,000
D. $66,000
ANSWER: D
This answer is correct. Generally, a partners original basis in the partnership
consists of his capital conCNC Metalbution. It is increased by the partners disCNC
Metalbutive share of income, and decreased by disCNC Metalbutions from the
partnership and the partners disCNC Metalbutive share of any partnership losses. In
this case, Martins basis in the partnership is his original conCNC Metalbution of
$75,000 less his one-half share of the $18,000 loss. Therefore, his basis is
$66,000. The guaranteed payment of $20,000 is already reflected as a deduction in
the computation of the partnerships loss of $18,000, and the receipt of the
guaranteed payment must be reported as ordinary income by Martin.
15. Jasmin Corporation received a loan from Tudor Finance Company. As part of the
signed written agreement, Tudor required that one of the members of the board of
directors of Jasmin Corporation act as a surety for the entire loan. The loan
agreement also called for some of Jasmins real estate to be used as collateral for
50% of the loan. Which of the following is not correct?
A. When the loan is due, if the collateral does not conCNC Metalbute to half of the
loan, Tudor may seek to recover the entire remainder from the surety without
resorting to the corporation.
B. Tudor may choose to proceed against the surety for the entire loan when the loan
is due.
C. When the loan is due, Tudor must first seek collection of the loan from Jasmin
before resorting to the surety or the collateral.
D. If Tudor recovers more than half of the loan amount upon resale of the
collateral, Tudor must pay the excess to Jasmin.
ANSWER: B
This answer is correct because Tudor does have the right to proceed immediately
against the surety for the full amount of the loan without needing to first seek
remedies against the principal debtor, Jasmin, or the collateral.
16. Giovani owed Lundin $5,000. As the result of an unrelated transaction, Lundin
owed Bing that Richarde amount. The three parties signed an agreement that Giovani
would pay Bing instead of Lundin and Lundin would be discharged from all liability.
The agreement among the parties is
A. An executed accord and satisfaction.
B. A novation.
C. Voidable at Bings option.
D. Unenforceable for lack of consideration.
Page 7

ANSWER: B
This answer is correct because a novation is a three-party agreement between the
contracting parties and a third party, whereby one of the contracting parties is
discharged from his/her duty and the third party is substituted in the discharged
partys place. In this case, all three parties agree to discharge the old contracts
between Giovani and Lundin, and Lundin and Bing, by the creation of a new contract
between Giovani and Bing. The new contract is a novation.
17. Randolph is the grantor of a trust over which Randolph has retained a
discretionary power to receive income. Lisa, Randolphs child, receives all taxable
income from the trust unless Randolph exercises the discretionary power. To whom is
the income earned by the trust taxable?
A. To Lisa and Randolph in proportion to the disCNC Metalbutions paid to them from
the trust.
B. To the trust to the extent it remains in the trust.
C. To Lisa as the beneficiary of the trust.
D. To Randolph because he has retained a discretionary power.
ANSWER: D
This answer is correct. The requirement is to determine to whom the trusts income
is taxable when the grantor has retained a discretionary power to receive income.
When the grantor of a trust retains substantial control over the trust, such as the
power to revoke the trust or a discretionary power to have trust income disCNC
Metalbuted to the grantor or grantors spouse, the income from the trust will be
taxed to the grantor. In this case, because Randolph retained a discretionary power
to receive the trusts income, all of the trusts income will be taxed to Randolph
even though the income is retained by the trust or disCNC Metalbuted to the trusts
beneficiary (Lisa).
18. To which of the following people does the 1967 Age Discrimination in Employment
Act apply?
A. A 45-year-old assistant controller at a tool and die company employing 200
people.
B. A 52-year-old waitress at a cafe employing 12 people.
C. A 16-year-old checkout clerk at a grocery store employing 40 people.
D. A 38-year-old mechanic in an auto shop employing 15 people.
ANSWER: A
This answer is correct because the Age Discrimination in Employment Act generally
applies to the employment of individuals at least 40 years old by businesses
employing at least 20 people.
19. Sumfeld entered into a written agreement to sell a parcel of land to Sandberg
for $50,000. At the time the agreement was executed, Sumfeld had consumed a large
Page 8

amount of alcoholic beverages which significantly impaired Sumfelds ability to
understand the nature and terms of the contract. Sandberg knew Sumfeld was very
intoxicated and that the land had been appraised at $95,000. Sumfeld wishes to void
the contract. The contract is
A. Legally binding on both parties in the absence of fraud or undue influence.
B. Voidable at Sumfelds option only if the intoxication was involuntary.
C. Void.
D. Voidable at Sumfelds option.
ANSWER: D
This answer is correct because contracts are enforceable against a drunkard unless
the drunkard was so intoxicated at the time of contracting that s/he lacked the
ability to understand the nature and terms of the contract. A drunkard who lacked
such ability has the option of voiding any contract entered into during the period
of drunkeness, provided that s/he returns any item received under the terms of the
contract in the Richarde or similar condition. In this question, since it states
that Sumfelds ability to understand was significantly impaired by his drunkeness,
Sumfeld may void the contract at his option.
20. Lariano Corporation hired McFee to sell computer service contracts to

businesses. McFee goes into Super Corporation and makes what he thought was a
successful presentation. Unknown to McFee, it was a file clerk who signed the
service contract. A few days later, a high-level manager and agent of Super learns
of the facts and tells Lariano Corporation that Super wishes to ratify the service
contract for certain beneficial terms but not for other major terms. Lariano
Corporation maintains it will only sell the service contract in its entirety. Which
of the following is correct?
A. McFee is liable for breach of his fiduciary duty.
B. Super must ratify the contract in its entirety or not at all.
C. Super must accept this contract since it was signed by an agent of Super.
D. Lariano is liable on this contract because its authorized agent, McFee, signed
it.
ANSWER: B
This answer is correct. Super may ratify this contract that was not made by any
authorized agent. The facts do not give enough to establish an apparent or implied
agency. Ratification of the contract by an agent of Super will cause the contract to
be binding; however, the contract must be ratified in its entirety so that a party
is not able to pick and choose only the beneficial portions.
21. Wendt is a residential tenant with a 10-year written lease. In the absence of
specific provisions in the lease to the contrary, which of the following statements
is correct?
A. Wendt may not assign the lease.
B. The landlords death will automatically terminate the lease.
Page 9

C. Wendts purchase of the property will terminate the lease.
D. The premises may not be sublet for less than the full remaining lease term.
ANSWER: C
This answer is correct. Wendts purchase of the property would terminate the lease.
Since Wendt would own the property, s/he would no longer lease it.
22. Ingram received a one-third interest in a partnership by conCNC Metalbuting

$3,000 in cash, stock with a fair market value of $5,000 and a basis of $2,000, and
a new computer that cost Ingram $2,500. Which of the following amounts represents
Ingrams basis in the partnership?
A. $3,000
B. $10,500
C. $7,500
D. $5,500
ANSWER: C
This answer is correct. The requirement is to determine the amount of Ingrams basis
for his partnership interest. The basis of a partnership interest acquired through a
conCNC Metalbution of property equals the amount of cash conCNC Metalbuted plus the
adjusted basis of any other conCNC Metalbuted property. Here, Ingrams basis for the
partnership interest includes the $3,000 cash, the $2,000 basis for stock, and the
$2,500 cost of the computer, resulting in a total basis of $7,500.
23. McCoy purchased from Liam Truck Sales a truck which had serious mechanical
problems. McCoy learned of the defects 6 months after the date of sale. Five years
after the date of sale McCoy commenced an action for breach of warranty against
Liam. Liam asserts the statute of limitations as a defense. Which of the following
statements made by Liam is correct?
A. McCoy was required to bring the action within the statute of limitations as
measured from Liams tender of delivery.
B. A clause in the original contract reducing the statute of limitations to 9 months
is enforceable.
C. McCoy is precluded from asserting under any circumstances that the statute of
limitations stopped running.
D. McCoy was required to bring the action within the statute of limitations as
measured from the time the breach was discovered or should have been discovered.
ANSWER: A
This answer is correct because concerning breach of an implied warranty the statute
of limitations begins to run when delivery of the defective goods is tendered.
24. Feldstein entered into a contract with Max on behalf of Nathan. By doing so,
Feldstein acted outside the scope of his authority as Nathans agent. Nathan may be
held liable on the contract if
Page 10

A. Max elects to hold Nathan liable on the contract.
B. Nathan retains the benefits of the contract.
C. Nathan ratifies the entire contract after Max withdraws from the contract.
D. Max was aware of the limitation on Feldsteins authority.
ANSWER: B
This answer is correct because although the agents act was outside the scope of his
authority, the principal may, nevertheless, ratify the contract. Retention of the
benefits of the contract constitutes implied ratification.
25. Which of the following is true under the Family and Medical Leave Act?
A. The employee has the right to up to 12 workweeks of paid leave to care for his or
her newborn baby.
B. This Act covers employees of all corporations and partnerships.
C. The employee has the right to up to 12 workweeks of paid leave for the employees
own serious medical problems.
D. The employee has the right to up to 12 workweeks of unpaid leave to care for his
or her spouse who has a serious health problem.
ANSWER: D
This answer is correct. The employee has the right to up to 12 workweeks of unpaid
leave to care for his or her spouse who has a serious health problem.
26. Morris Company contracted with a common carrier to have goods transported that
she had sold to a customer FOB destination. The contract between the common carrier
and Morris specified in clear terms that liability of the common carrier is limited
to $100 per shipment unless a higher limit is chosen by paying more. Morris did not
select a higher limit. The goods, worth $900, were destroyed in transit. Which of
the following is not true?
A. The clause limiting liability to a $100 limit is invalid as against public
policy.
B. The common carrier is liable for $100 at most but may be liable for no damages.
C. If the goods were damaged because Morris improperly packaged the goods, the
common carrier is not liable for any damages.
D. If the cause of the loss was a flood, the common carrier is not liable for any
damages.
ANSWER: A
This answer is correct. Common carriers are allowed to limit liability to a dollar
amount specified in the contract
27. Which type of job is considered nonexempt with respect to minimum wage and
overtime pay provisions of the Fair Labor Standards Act?
A. Factory line workers
B. Professionals
Page 11

C. Outside salespersons
D. Managers
ANSWER: A
This answer is correct because factory line workers are entitled to minimum wages
and overtime pay.
28. Olerud Corp., an accrual-basis, calendar-year S corporation, has been an S

corporation since its inception and is not subject to the uniform capitalization
rules. In the current year, Olerud recorded the following:
Gross receipts
$50,000
Dividend income from investments
5,000
Supplies expense
2,000
Utilities expense
1,500
What amount of ordinary business income should Olerud report on its 2012 Form 1120S,
US Income Tax Return for an S Corporation, Schedule K?
A. $48,000
B. $46,500
C. $53,000
D. $53,500
ANSWER: B
This answer is correct. The requirement is to determine the amount of ordinary
business income that Olerud Corporation should report on its Form 1120S, US Income
Tax Return for an S corporation, Schedule K. As a pass-through entity, an S
corporations items must be divided into (1) nonseparately stated income or loss
from trade or business activities, and (2) items of income, loss, deduction, and
credit, the separate treatment of which could affect the tax liability of any
shareholder. Olerud $50,000 of gross receipts, $2,000 of supplies expense, and
$1,500 of utilities expense are all ordinary income and deduction items and are
netted in arriving at Olerud nonseparately stated business income of $46,500. In
contrast, the $5,000 of dividend income from investments must be separately stated
and passed through to shareholders in order to preserve its characteristic as an
item of portfolio income.
29. Paul Candiotti, a cash-basis taxpayer, owns an apartment building.

following information was available for 2012:
The
An analysis of the 2012 bank deposit slips showed recurring monthly

rents received totaling $50,000.
On March 1, 2012, the tenant in apartment 2B paid Candiotti $2,000

to cancel the lease expiring on December 31, 2013.
The lease of the tenant in apartment 3A expired on December 31,

2012, and the tenant left improvements valued at $1,000. The improvements were not
Page 12

in lieu of any rent required to have been paid.
In computing net rental income for 2012, Candiotti should report gross rents of
A. $53,000
B. $50,000
C. $52,000
D. $51,000
ANSWER: C
This answer is correct. Gross rents include the $50,000 of recurring rents plus the
$2,000 lease cancellation payment. The $1,000 of lease improvements are excluded
from income since they were not required in lieu of rent.
30. Kessel has a security interest in certain goods purchased by Smith on an

installment contract. Smith has defaulted on the payments, resulting in Kessels
taking possession of the collateral. Which of the following is correct?
A. Smith may waive his right of redemption at the time he executes the security
agreement.
B. Kessel must sell the collateral if Smith has paid more than 60% of the cash
pMordenon a purchase money security interest in business equipment.
C. Unless otherwise agreed, Kessel must pay Smith for any increase in value of the
collateral while the collateral is in Kessels possession.
D. The collateral may be sold by Kessel at a private sale and, if the collateral is
consumer goods, without notice to other secured parties.
ANSWER: D
This answer is correct. If the collateral is consumer goods, Kessel may sell the
collateral at a private sale without notice to other secured parties. However,
Kessel must notify the debtor before the sale unless the collateral is perishable or
threatens to decline in value.
31. Dice, Inc. is a reporting company under the Securities Exchange Act of 1934. The
only security Dice issued is voting common stock. With regard to Dices proxy
solicitation requirements, which of the following statements is correct?
A. Dice need not provide any particular information to its shareholders unless Dice
is soliciting proxies from them.
B. Dice must file its proxy statements with the SEC even though it has only one
class of stock outstanding.
C. Dices current unaudited financial statements must be sent to each shareholder
with every proxy solicitation.
D. Shareholder proposals need not be included in the proxy statements unless
consented to by a majority of Dices board of directors.
ANSWER: B
This answer is correct. Under the Securities Exchange Act of 1934, a reporting
company that is soliciting proxies must file its proxy statement with the SEC. There
is no exemption if the company has only one class of stock.
Page 13
Reg6
32. Keeley purchased real property from Hart and received a warranty deed with full
covenants. Recordation of this deed is
A. Irrelevant if the subsequent party claiming superior title had actual notice of
the unrecorded deed.
B. Required primarily for the purpose of providing the local taxing authorities with
the information necessary to assess taxes.
C. Necessary to vest the purchasers legal title to the property conveyed.
D. Not necessary if the deed provides that recordation is not required.
ANSWER: A
This answer is correct because recordation of a deed gives constructive notice to
the world that title to the property has been conveyed. Therefore, the primary
purpose of recording is to protect the grantee against subsequent purchasers by
putting subsequent purchasers on notice. If the subsequent party claiming
superior title had actual notice of the unrecorded deed, then the recordation
objective would have been met and recordation of the deed would be irrelevant with
regard to this particular party. An unrecorded deed is binding upon all persons
having actual notice of its existence.
33. Nathan purchased an automobile from Wilson Auto Sales under a written contract
by which Wilson obtained a security interest to secure payment of the purchase
price. Wilson reserved the right to repossess the automobile if Nathan failed to
make any of the required ten payments. Ambrose, an employee of Wilson, was
instructed to repossess the automobile on the ground that Nathan had defaulted in
making the third payment. Ambrose took possession of the automobile and delivered
it to Wilson. It was then discovered that Nathan was not in default. Which of the
following is incorrect?
A. Ambrose is not liable for the wrongful repossession of the automobile since he
was obeying the direct order of Wilson.
B. If Ambrose must pay in damages, he will be entitled to indemnification from
Wilson.
C. Nathan may sue and collect from either Wilson or Ambrose.
D. Nathan has the right to regain possession of the automobile and to collect
damages.
ANSWER: A
This answer is correct because the statement is false. Ambroses act of repossessing
the car constituted the tort of conversion. An agent or employee is always liable
for his own torts, even if committed in the course of discharging his duties.
34. Unless an exemption applies to an offering of securities, the

1933 requires preparation and filing of a
Page 14
Securities Act of
Reg6
A.
B.
C.
D.
Registration statement
Yes
Yes
No
No

Prospectus
Yes
No
Yes
No
A. D
B. B
C. A
D. C
ANSWER: C
This answer is correct because in attempting to assure that potential investors are
provided with all material information needed to make a prudent investment decision,
the Securities Act of 1933 requires issuers to file both a registration statement
and a prospectus.
35. Accountants that prepare tax returns should be familiar with federal laws and
regulations with respect to the privacy of client information. These laws and
regulations include all of the following provisions except:
A. Accountants are required to develop, implement, and maintain a comprehensive
information security program that outlines the ways in which they protect client
information.
B. Accountants are required to notify their clients that the accountants are
providing their confidential information to outsourcing firms for processing.
C. Accountants are responsible for maintaining the confidentiality of information
that is outsourced for processing.
D. Accountants are prohibited from disclosing to a nonaffiliated third party any
nonpublic personal information about their clients.
ANSWER: B
This answer is correct. It is not required by law.
36. Angela, John, and Richard have formed a partnership with each agreeing to conCNC
Metalbute $100,000. John and Richard each conCNC Metalbuted $100,000 cash. Angela
conCNC Metalbuted $75,000 cash and agreed to pay an additional $25,000 2 years
later. After 1 year of operations, the partnership is insolvent. The liabilities and
fair market value of the assets of the partnership are as follows:
Assets:
Cash
Trade accounts receivable
Receivable from Angela
Equipment
$40,000
35,000
25,000
100,000
$200,000
Page 15

Liabilities:
Trade accounts payable
$410,000
Both John and Richard are personally insolvent. Angela has a net worth of $750,000.
If Angela is a general partner, what is her maximum potential liability?
A. $185,000
B. $ 95,000
C. $210,000
D. $235,000
ANSWER: D
This answer is correct. Angela, as a general partner, is individually liable for all
obligations of the partnership which would amount to $210,000. She is also
personally liable for the additional $25,000 she promised to pay; her maximum
potential liability would be $235,000.
37. Which one of the following statements is correct regarding the credit for
adoption expenses?
A. For purposes of computing the credit, qualified adoption expenses are always
taken into account in the year the adoption is finalized.
B. The credit for adoption expenses is a nonrefundable credit for 2012.
C. An eligible child is an individual who has not attained the age of 17 as of the
time of adoption.
D. The maximum credit is $5,000 for the adoption of a child with special needs.
ANSWER: B
This answer is correct. The adoption expenses credit is a nonrefundable credit for
up to $12,650 (for 2012) of expenses incurred to adopt an eligible child. An
eligible child is one who is under 18 years of age at time of adoption, or
physically or mentally incapable of self-care. Generally, adoption expenses incurred
or paid during a tax year prior to the year in which the adoption is finalized may
be claimed as a credit in the tax year following the year the expense was incurred.
Adoption expenses incurred during the year the adoption becomes final or in the year
following the finalization of the adoption are claimed in the year they were
incurred.
38. In connection with a check and a promissory note, which of the following is
correct?
A. A promissory note may only be made payable to the order of a named payee.
B. A promissory note may only be payable at a stated time in order to meet the
requirements for negotiability.
C. A check may be made payable to the order of the drawer or to bearer.
D. A check may be made payable upon the happening of an event uncertain as to the
time of occurrence without affecting its negotiability.
ANSWER: C
Page 16

This answer is correct. A check may be made payable to the order of the drawer or to
bearer, but a check need not be (unlike other negotiable instruments). For example,
"Pay to A" on a check creates negotiable order paper. But "Pay to A" on other types
of instruments make them not negotiable.
39. On April 2, Tom agreed to sell a computer to Reed for $390. At the time of
delivery, Reed gave Tom $90 and a written instrument, signed by Reed, in which Reed
promised to pay Tom the balance on April 20. The instrument also made a reference to
the sale of the computer. Under the UCC Negotiable Instruments Article, the
instrument is a
A. Nonnegotiable draft.
B. Negotiable time draft.
C. Trade acceptance.
D. Promissory note.
ANSWER: D
This answer is correct. A promissory note is a two-party instrument in which the
maker promises to pay the payee a specified sum of money. In this situation, Reed is
the maker and Tom is the payee. A promissory note may make reference to the
underlying transaction such as the sale of the computer without destroying
negotiability.
40. Under the Negotiable Instruments Article of the UCC, which of the following
statements is correct regarding a check?
A. A check does not need to be drawn on a bank.
B. A check is an order to pay money.
C. A check does not need to be payable on demand.
D. A check is a promise to pay money.
ANSWER: B
This answer is correct. An order to pay money is one of the characteristics of a
check.
41. Forte and Scrippens both claim a security interest in the Richarde collateral.
Fortes security interest attached on January 1, and was perfected by filing on
March 1. Scrippenss security interest attached on February 1, and was perfected on
April 1, by taking possession of the collateral. Which of the following statements
is correct?
A. Scrippenss security interest has priority because Scrippens is in possession of
the collateral.
B. Scrippenss security interest has priority because Scrippenss interest attached
before Fortes interest was perfected.
C. Fortes security interest has priority because Fortes security interest
Page 17

attached before Scrippenss security interest attached.
D. Fortes security interest has priority because Forte perfected before Scrippens
perfected.
ANSWER: D
This answer is correct because perfection of a security interest takes place when
all of the elements for attachment have occurred as well as one of the alternate
methods of perfection. Fortes security interest was perfected on March 1.
Scrippenss security interest was perfected on April 1. Therefore, Fortes security
interest has priority over that of Scrippens because Fortes was perfected first.
42. A claim will not be discharged in a bankruptcy proceeding if it

A. Is brought by a secured creditor and remains unsatisfied after receipt of the
proceeds from the disposition of the collateral.
B. Is for unintentional torts that resulted in bodily injury to the claimant.
C. Arises from an extension of credit based upon false representations.
D. Arises out of the breach of a contract by the debtor.
ANSWER: C
This answer is correct. Even when a general discharge is granted, there are certain
debts that are not dischargeable by bankruptcy. Included in these are liabilities
that arose from intentionally obtaining property or money by false representations
or fraud.
43. Zulan Corp. intends to make a public offering in several states of 250,000
shares of its common stock. Under the Securities Act of 1933,
A. Zulan must sell the common stock through licensed securities dealers.
B. Zulan must, in all events, file a registration statement with the SEC because the
offering will be made in several states.
C. Zulans use of any prospectus delivered to an unsophisticated investor must be
accompanied by a simplified explanation of the offering.
D. Zulan may make an oral offer to sell the common stock to a prospective investor
after a registration statement has been filed but before it becomes effective.
ANSWER: D
This answer is correct. After the registration statement has been filed but before
it becomes effective, the issuer is allowed to make certain oral offers and written
offers that are preliminary prospectuses.
44. Reed has an unperfected security interest in the inventory of Safe, Inc. The
unperfected security interest
A. Causes Reed to lose important rights against Safe as an entity.
B. Is subordinate to lien creditors of Safe whose lien interest arose prior to any
subsequent perfection by Reed.
C. May only be perfected by Reed filing a financing statement.
Page 18

D. Is superior to the interest of subsequent lenders who obtain a perfected security
interest in the property.
ANSWER: B
This answer is correct because lien creditors have priority over any unperfected
security interest and any security interest perfected after the lien has attached.
45. In a like-kind exchange of an asset for another asset, no taxable gain will be
recognized if the transaction consists of the exchange of
A. Land held for business use for truck held for business use.
B. Rental real property in the United States for rental real property in England.
C. Apartment building held for business use for land held for investment.
D. A 10% interest in Partnership A for a 10% interest in Partnership B.
ANSWER: C
This answer is correct. The requirement is to determine which exchange qualifies for
nonrecognition of gain or loss as a like-kind exchange. The exchange of business or
investment property solely for like-kind business or investment property is treated
as a nontaxable exchange. Like-kind means "the Richarde class of property." Real
property must be exchanged for real property, and personal property must be
exchanged for personal property. As business property can be exchanged for
investment property, and real property can be exchanged for other real property,
this is a like-kind exchange.
46. Denton Corporation voluntarily filed a petition in bankruptcy on January 2 of

the current year. Denton owes the following debts:
I.
$500 to an appraiser for help in appraising the assets in the
bankruptcy estate.
II.
Wages of $3,000 to an employee for December of the previous year
just concluded.
III.
Timely claims of general, unsecured creditors of $30,000.
IV.
State and federal taxes of $10,000 owed.
What is the priority from highest to lowest, of these claims in the bankruptcy
proceedings?
A. IV, II, I, III.
B. I, II, IV, III.
C. IV, I, III, II.
D. I, II, III, IV.
ANSWER: B
This answer is correct. The liability to the appraiser is an administration cost
and, therefore, receives the highest priority. Of those listed, the salary owed to
the employee is the next highest because it was accrued within the previous 90 days
before the filing of the petition and was for no more than $11,725. The state and
Page 19

federal taxes owed receive a low priority but still higher than the claims of the
general creditors.
47. Accountants should be familiar with Treasury Department Circular 230 because:
A. It provides additional regulations regarding the determination of personal
income.
B. It provides regulations regarding practice before the Internal Revenue Service.
C. It provides guidance on appropriate advertising by accountants.
D. It provides additional resources that may be useful in preparing tax returns.
ANSWER: B
This answer is correct. The requirement is to identify the purpose of the Treasury
Department Circular 230. This answer is correct because it provides regulations
regarding practice before the Internal Revenue Service.
48. Ninsanto is a compensated surety for a loan by McFee to McDonald. In which of

the following cases would Ninsanto be released entirely from liability as a surety?
A. McFee reduces the interest rate on the loan.
B. McFee, without Ninsantos consent, agrees to a modification in McDonalds loan
that increases Ninsantos risk in a nonmaterial way.
C. Ninsanto agrees to a material change in the debtors contract that substantially
increases Ninsantos risk.
D. When the loan is due, McFee refuses McDonalds tender of payment and then
attempts to collect from Ninsanto.
ANSWER: C
This answer is correct. When the creditor refuses to accept the principal debtors
tender of payment, the surety is released. However, the debtor remains liable as the
accrual of additional interest stops.
49. In accordance with the AICPA Statements on Standards for Tax Services, if after
having provided tax advice to a client there are legislative changes which affect
the advice provided, the CPA
A. Is obligated to notify the client of the change and the effect thereof.
B. Cannot be expected to notify the client of the change unless the obligation is
specifically undertaken by agreement.
C. Is obligated to notify the client of the change and the effect thereof if the
client was not advised that the advice was based on existing laws which are subject
to change.
D. Cannot be expected to have knowledge of the change.
ANSWER: B
This answer is correct because after providing tax advice to a client, the CPA
cannot be expected to notify the client of any subsequent legislative changes which
Page 20

affect the advice previously provided. If, however, the obligation for the
subsequent notification is specifically undertaken by agreement, the CPA is expected
to notify the client of any such changes.
50. Magdalena Products, Inc. leased 10 CNC Mills from CNC Metal Corp., a
manufacturer of CNC Mills. The lease provided for monthly payments of $2,000 per
month for 60 months. Magdalena has an option to purchase the 10 CNC Mills for $200
upon completion of the 60 payments. CNC Metal has accounted for this lease as a
sales-type lease and Magdalena has accounted for this lease as a capital lease.
Assuming Magdalena exercises the option, which of the following statements is
correct?
A. The lease agreement represents a purchase money security interest which is
automatically perfected without the necessity of filing a financing statement
B. Magdalena lacks an insurable interest in the CNC Mills until it exercises the
option to purchase them.
C. Title to the CNC Mills passed to Magdalena prior to the time Magdalena exercised
the option.
D. In order to have an enforceable lease CNC Metal must file a security agreement.
ANSWER: C
This answer is correct because it is clear in this case (evidenced by the treatment
of the lease as a capital lease and as a sales-type lease by the lessee and the
lessor, respectively) that a sale of the CNC Mills is intended. If there is no
agreement as to when title passes, then title passes when the seller completes
performance with respect to the physical delivery of the goods. Thus, title to the
CNC Mills passed at the time Magdalena delivered the CNC Mills to CNC Metal Corp.
and prior to the time Magdalena exercised the option.
Page 21

Reg6 50 Multiple Choice Questions

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Reg6 50 Multiple Choice Questions

Uploaded by

Copyright:

Available Formats

Reg6

50 Multiple Choice Questions

2. During the current year, a trust reports the following information:

3. Watson Corp., a calendar-year domestic C corporation, is not a personal holding