AICPA CPA-Regulation CPA Exam Questions Instant Access

Question 1

Fred Berk bought a plot of land with a cash payment of $40,000 and a mortgage of $50,000. In addition, Berk paid $200 for a title insurance policy. Berk's basis in this land is:

A$40,000

B$40,200

C$90,000

D$90,200

Answer : D

Choice 'd' is correct. $90,200 is Berk's basis in the land.

Rule: The basis of the property acquired will be the property's cost consisting of the amount of cash paid plus any amount of related debt assumed. Cost will be adjusted to reflect any additional costs incurred in purchasing the property.

Choices 'a', 'b', and 'c' are incorrect, per the above rule.

Question 2

Which payment(s) is(are) included in a recipient's gross income?

I . Payment to a graduate assistant for a part-time teaching assignment at a university. Teaching is not a requirement toward obtaining the degree.

II . A grant to a Ph.D. candidate for his participation in a university-sponsored research project for the benefit of the university.

AI only.

BII only.

CBoth I and II

DNeither I nor II

IA payment to a student for a part-time teaching assignment is taxable income just as a payment for any other campus job would be. This is not a scholarship or fellowship.
II. There is no exclusion in the tax law for amounts paid to a degree candidate for participation in university-sponsored research.

Answer : C

Choice 'c' is correct.

Question 3

Parker, whose spouse died during the preceding year, has not remarried. Parker maintains a home for a dependent child. What is Parker's most advantageous filing status?

ASingle.

BHead of household.

CMarried filing separately.

DQualifying widow(er) with dependent child.

Answer : D

Choice 'd' is correct. A qualifying widow (er) is a taxpayer who may use the joint tax return standard deduction and rates (but not the exemption for the deceased spouse) for each of two taxable years following the year of death of his or her spouse, unless he or she remarries. The surviving spouse must maintain a household that, for the whole entire taxable year, was the principal place of abode of a son, stepson, daughter, or stepdaughter (whether by blood or adoption). The surviving spouse must also be entitled to a dependency exemption for such individual. Parker may file as a qualifying widow (er) since her spouse died in the previous tax year, she did not remarry and she maintained a home for a dependent child. Since, qualifying widow (er) is the most advantageous status and Parker qualifies, Parker would file as a qualifying widow (er).

Choice 'a' is incorrect. Even though Parker would qualify as single, filing single would give Parker a high tax liability than the qualifying widow (er) status and therefore is not most advantageous.

Choice 'b' is incorrect. Parker would not qualify as head of household for the first two years after the death of Parker's spouse because one of the requirements for Head of Household status is that the taxpayer is NOT a surviving spouse. (Also, note that the likely reason for this requirement is that filing as Head of Household status would give the qualifying surviving spouse taxpayer a higher tax liability than the Qualifying Widow(er) status, which would be less advantageous.)

Choice 'c' is incorrect. Parker would not qualify to file married filing separately.

Question 4

Starr, a self-employed individual, purchased a piece of equipment for use in Starr's business. The costs associated with the acquisition of the equipment were:

What is the depreciable basis of the equipment?

A$55,000

B$58,400

C$59,125

D$59,425

Answer : D

Choice 'd' is correct. The rules for depreciable basis in tax are generally the same as the GAAP rules for capitalizing an asset. The depreciable basis is the cost associated with the purchase of the asset and with getting the asset ready for its intended use. Further improvements are also capitalized, and the basis is reduced for any accumulated depreciation. In this case, the cost of obtaining the equipment and getting the equipment ready for its intended use includes all the items shown above, as follows:

Choice 'a' is incorrect. The costs of delivery charges, installation, and sales tax are all part of the cost of obtaining the asset and getting the asset ready for its intended use. All of these charges are included in the depreciable basis of the equipment.

Choice 'b' is incorrect. The costs of delivery charges and installation are both part of the cost of obtaining the asset and getting the asset ready for its intended use. These charges are included in the depreciable basis of the equipment.

Choice 'c' is incorrect. The cost of installation is part of the cost getting the asset ready for its intended use. This charge is included in the depreciable basis of the equipment.

Question 5

Which of the following statements is the best definition of real property?

AReal property is only land.

BReal property is all tangible property including land.

CReal property is land and intangible property in realized form.

DReal property is land and everything permanently attached to it.

Answer : D

Choice 'd' is correct. Real property includes land and all items permanently affixed to the land (e.g., buildings, paving, etc.)

Choice 'a' is incorrect. Real property includes more than just the land (as per the Explanation: above); it includes all items permanently affixed to land.

Choice 'b' is incorrect. 'All' tangible property could include moveable personal property and is therefore, incorrect.

Choice 'c' is incorrect. 'Intangible property in realized form' is a distracter and a contradiction in terms.

Question 6

A cash basis taxpayer should report gross income:

AOnly for the year in which income is actually received in cash.

BOnly for the year in which income is actually received whether in cash or in property.

CFor the year in which income is either actually or constructively received in cash only.

DFor the year in which income is either actually or constructively received, whether in cash or in property.

Answer : D

Choice 'd' is correct. A cash basis taxpayer should report gross income for the year in which income is either actually or constructively received, whether in cash or in property.

Choice 'a' is incorrect. Income also be constructively received in property - not only actually in cash.

Choice 'b' is incorrect. Income also be constructively received - not only actually.

Choice 'c' is incorrect. Income also be received in property - not only cash.

Question 7

Freeman, a single individual, reported the following income in the current year:

Guaranteed payment from services rendered to a partnership $50,000

Ordinary income from a S corporation $20,000

What amount of Freeman's income is subject to self-employment tax?

A$0

B$20,000

C$50,000

D$70,000

Answer : C

Choice 'c' is correct. Guaranteed payments are reasonable compensation paid to a partner for services rendered (or use of capital) without regard to his ratio of income. Earned compensation is subject to selfemployment tax. Payments not guaranteed are merely another way to distribute partnership profits. The ordinary income reported from an S corporation are taxable income to the individual or their own individual tax return but is not subject to self-employment tax. The ordinary income reported from a partnership may be subject to self-employment tax (if to a general partner).

AICPA CPA Regulation CPA-Regulation CPA Exam Questions