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 debtor’s 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 $10,000 Interest from corporate bonds 12,000

Tax-exempt interest from state bonds 4,000 Capital gain (allocated to corpus) 2,000

Trustee fee (allocated to corpus) 6,000

What is the trust’s accounting income?

A. $34,000

B. $28,000

C. $22,000

D. $26,000

ANSWER: D

This answer is correct. The requirement is to determine a trust’s 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

trust’s accounting income. Here, the trust’s 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


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, Watson’s 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 $200,000 Cost $210,000

Depreciation (30,000) Adjusted basis (180,000)

Recognized gain $ 20,000


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 $ 280,000 Add back DRD 34,000

TI before CC and DRD $ 314,000 % limitation × 10%

Allowable conCNC Metalbutions $ 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.


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 D’s property interest as there is no right of survivorship under a tenancy in

common. Therefore, were X to purchase C’s 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 Holmgren’s

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 creditor’s

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.


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 Mandalay’s 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 donor’s 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 Mike’s 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 Stack’s 2012

tax return?

A. $1,300

B. $1,650

C. $1,170

D. $1,520

ANSWER: C

This answer is correct. Stack’s total deductible medical expenses would be

calculated as follows:


Prescription drugs $ 470 Hospitals and doctors 700

Total $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 Margo’s debts as they become due and Margo’s

liabilities exceed Margo’s 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 Margo’s liabilities exceed Margo’s 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 Margo’s 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 debtor’s 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 Margo’s 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 Martin’s guaranteed payment) would be shared equally. For

the year ended December 31, 2012, the partnership’s 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


amount of Martin’s 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 partner’s original basis in the partnership

consists of his capital conCNC Metalbution. It is increased by the partner’s disCNC

Metalbutive share of income, and decreased by disCNC Metalbutions from the

partnership and the partner’s disCNC Metalbutive share of any partnership losses. In

this case, Martin’s 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 partnership’s 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 Jasmin’s 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 Bing’s option.

D. Unenforceable for lack of consideration.


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

party’s 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, Randolph’s 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 trust’s 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 grantor’s spouse, the income from the trust will be

taxed to the grantor. In this case, because Randolph retained a discretionary power

to receive the trust’s income, all of the trust’s income will be taxed to Randolph

even though the income is retained by the trust or disCNC Metalbuted to the trust’s

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


amount of alcoholic beverages which significantly impaired Sumfeld’s 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 Sumfeld’s option only if the intoxication was involuntary.

C. Void.

D. Voidable at Sumfeld’s 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 Sumfeld’s 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 landlord’s death will automatically terminate the lease.


C. Wendt’s 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. Wendt’s 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

Ingram’s 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 Ingram’s 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, Ingram’s 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 Liam’s 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 Nathan’s agent. Nathan may be

held liable on the contract if


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 Feldstein’s authority.

ANSWER: B

This answer is correct because although the agent’s 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 employee’s

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


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

corporation’s 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. The

following information was available for 2012:

• 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


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 Kessel’s

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 Kessel’s 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 Dice’s 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. Dice’s 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 Dice’s 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.


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 purchaser’s 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. Ambrose’s 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 Securities Act of

1933 requires preparation and filing of a


Registration statement Prospectus A. Yes Yes B. Yes No C. No Yes D. No 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 $40,000

Trade accounts receivable 35,000 Receivable from Angela 25,000

Equipment 100,000 $200,000

Reg6 50 Multiple Choice Questions 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


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.

Forte’s security interest attached on January 1, and was perfected by filing on

March 1. Scrippens’s 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. Scrippens’s security interest has priority because Scrippens is in possession of

the collateral.

B. Scrippens’s security interest has priority because Scrippens’s interest attached

before Forte’s interest was perfected.

C. Forte’s security interest has priority because Forte’s security interest


attached before Scrippens’s security interest attached.

D. Forte’s 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. Forte’s security interest was perfected on March 1.

Scrippens’s security interest was perfected on April 1. Therefore, Forte’s security

interest has priority over that of Scrippens because Forte’s 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. Zulan’s 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.


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


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 Ninsanto’s consent, agrees to a modification in McDonald’s loan

that increases Ninsanto’s risk in a nonmaterial way.

C. Ninsanto agrees to a material change in the debtor’s contract that substantially

increases Ninsanto’s risk.

D. When the loan is due, McFee refuses McDonald’s tender of payment and then

attempts to collect from Ninsanto.

ANSWER: C

This answer is correct. When the creditor refuses to accept the principal debtor’s

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


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.

Reg6 50 Multiple Choice Questions

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