CPA Regulation (REG) : CPA Regulation (REG)
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Example Questions
Example Question #1 : Taxable Income Items
Dot, an employee of Acme C Corporation, is not a shareholder. Which of the following would be included in a taxpayer’s gross income?
The fair market value of a vehicle that the taxpayer inherited from an uncle.
The dividend income on shares of stock that the taxpayer received for services rendered.
Employer-provided medical insurance coverage under a health plan.
A $9,000 gift from the taxpayer’s grandparents.
The dividend income on shares of stock that the taxpayer received for services rendered.
Gifts, inheritance, and medical insurance are not included in gross income. Dividend income is the only item that is regularly included in gross income.
Example Question #2 : Taxable Income Items
Which of the following costs is not included in inventory under the Uniform Capitalization rules for goods created by the taxpayer?
Warehousing costs
Research
Taxes excluding income taxes
Quality control
Research
Uniform Capitalization rules provide guidelines with respect to capitalizing or expensing certain costs. With regard to inventory, direct materials, direct labor, and factory overhead should be capitalized as part of the cost of inventory.
Example Question #3 : Taxable Income Items
Which of the following costs are subject to the Uniform Capitalization Rules of Code Sec 263A for manufactured tangible personal property?
Off-site storage
Advertising
Research
Marketing
Off-site storage
Costs required to be capitalized under the uniform capitalization rules include direct materials, direct labor, and applicable indirect costs. Applicable indirect costs include utilities, warehousing costs, repairs, maintenance, indirect labor, rents, storage, depreciation, and others.
Example Question #4 : Taxable Income Items
If a partnership’s business and financial operations are discontinued, would it be considered terminated for income tax purposes?
If 60% of the total interest is sold within 12 months
Yes
More information needed
No
Yes
A partnership is considered terminated under a few circumstances, one being if the operations of it are ceased.
Example Question #1 : Individual Income Tax Exemptions, Credits, & Deductions
CBI Foundation awarded Karen $65,000 in recognition of lifelong scholarly achievement. Karen was not required to render future services as a condition to receive the $65,000. What condition(s) must have been met for the award to be excluded from Karen’s gross income?
I. Karen was selected for the award by CBI without any action on Karen’s part.
II. Pursuant to Karen’s designation, CBI paid the amount of the award either to a governmental unit or to a charitable organization.
I only.
Neither I or II.
Both I and II.
II only.
Both I and II.
Prizes and awards may be excluded from taxable income, provided (1) the recipient took no action to be selected for the award, and (2) the award is assigned directly to a governmental unit or charitable organization.
Example Question #2 : Individual Income Tax Exemptions, Credits, & Deductions
Kent bought Series EE U.S. Savings Bonds after 1989. Redemption proceeds will be used for payment of college tuition for Kent’s dependent child. One of the conditions that must be met for the exemption of accumulated interest on these bonds is that the:
Purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse).
Bonds must be bought by a parent (or both parents) and put in the name of the dependent child.
Bonds must be bought by the owner of the bonds before the owner reaches the age of 24.
Bonds must be transferred to the college for redemption by the college rather than by the owner of the bonds.
Purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse).
Series EE Bonds issued after 1989 are must meet several criteria for interest to be tax-exempt: (a) the interest must be used to pay for tuition of the taxpayer, spouse, or dependents; (b) the taxpayer is over age 24 when the bond is issued; (c) a married taxpayer files a joint return; and (d) the taxpayer meets certain income requirements. The bond must be in the taxpayer’s and/or spouse’s name; a child/dependent may only be a beneficiary, not an owner.
Example Question #2 : Individual Income Tax Exemptions, Credits, & Deductions
Lois did not itemize deductions on her Year 9 federal income tax return. In July Year 10, Lois received a state income tax refund of $850 plus interest of $15 for overpayment of Year 9 state income tax. What amount of the state tax refund and interest is tax-exempt on Lois’s Year 10 federal income tax return?
$865
$850
$15
$0
$850
If an individual did not deduct state or local tax paid in a prior year, then the receipt of a state or local tax refund is also not taxable. Interest income on the refund, however, is taxable.
Example Question #3 : Individual Income Tax Exemptions, Credits, & Deductions
Of the following exempt organizations must file annual information returns?
Churches
Private foundations
Internally supported auxiliaries of churches
Those with gross receipts of less than $45,000 in each taxable year
Private foundations
Private foundations must file annual information returns. Exempt are churches, religious activities, and certain organizations that normally have annual gross receipts of $50,000 or less.
Example Question #4 : Individual Income Tax Exemptions, Credits, & Deductions
The private foundation status of an exempt organization will terminate if it:
Does not distribute all of its net assets to one or more public charities
Is governed by a charter that limits the exempt purposes
Becomes a public charity
Is a foreign corporation
Becomes a public charity
The private foundation status of an exempt organization will terminate if it becomes a public charity. Not included in exempt status are public safety organizations, supporting organization, broadly publicly supported organizations, and max 60% charitable deduction donees.
Example Question #5 : Individual Income Tax Exemptions, Credits, & Deductions
Of the following items, which would cause a permanent book to tax difference?
Municipal bond income
Deferred tax liability
Deferred tax asset
Different depreciation methods
Municipal bond income
A deferred asset or liability, as well as a different depreciation method from book accounting, would create a temporary difference in book to tax income, whereas municipal bond income is a permanent difference.
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