AICPA CPA Regulation CPA Regulation Dumps in PDF

Free AICPA CPA Regulation Real Questions (page: 12)

Under the uniform capitalization rules applicable to property acquired for resale, which of the following costs should be capitalized with respect to inventory if no exceptions are met?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): D

Explanation:

Choice "d" is correct. Under the uniform capitalization rules, purchasers of inventory for resale may deduct their marketing costs but must capitalize their off-site storage costs.
Choices "a", "b", and "c" are incorrect. Marketing costs are deductible, but off-site storage must be capitalized.



In a tax year where the taxpayer pays qualified education expenses, interest income on the redemption of qualified U.S. Series EE Bonds may be excluded from gross income. The exclusion is subject to a modified gross income limitation and a limit of aggregate bond proceeds in excess of qualified higher education expenses. Which of the following is (are) true?

I). The exclusion applies for education expenses incurred by the taxpayer, the taxpayer's spouse, or any person whom the taxpayer may claim as a dependent for the year.
II). "Otherwise qualified higher education expenses" must be reduced by qualified scholarships not includible in gross income.

  1. I only.
  2. II only.
  3. Both I and II.
  4. Neither I nor II.

Answer(s): C

Explanation:

Choice "c" is correct. Interest earned on Series EE bonds issued after 1989 may qualify for exclusion. One requirement is that the interest is used to pay tuition and fees for the taxpayer, spouse, or dependent enrolled in higher education. The interest exclusion is reduced by qualified scholarships that are exempt from tax and other nontaxable payments received for educational expenses (other than gifts and inheritances).



During 1993 Kay received interest income as follows:

On U.S. Treasury certificates $4,000
On refund of 1991 federal income tax 500

The total amount of interest subject to tax in Kay's 1993 tax return is:

  1. $4,500
  2. $4,000
  3. $500
  4. $0

Answer(s): A

Explanation:

Choice "a" is correct. Interest income from U.S. obligations is generally taxable. Interest income on a federal tax refund is taxable, even though the refund itself is not taxed.
Choice "b" is incorrect. Interest income on a federal tax refund is taxable, even though the refund itself is not taxed.

Choice "c" is incorrect. Interest income from U.S. obligations is generally taxable.
Choice "d" is incorrect. Interest income from U.S. obligations is generally taxable. Interest income on a federal tax refund is taxable, even though the refund itself is not taxed.



Rich is a cash basis self-employed air-conditioning repairman with 1993 gross business receipts of $20,000. Rich's cash disbursements were as follows:

What amount should Rich report as net self-employment income?

  1. $15,100
  2. $14,900
  3. $14,100
  4. $13,900

Answer(s): A

Explanation:

Choice "a" is correct. Deductions to arrive at net self-employed income include all necessary and ordinary expenses connected with the business. Estimated federal income tax payments are not an expense. Charitable contributions by an individual are only deductible as an itemized deduction on Schedule A. This assumes the contribution was not made with the "expectation of commensurate financial return."

Choice "b" is incorrect. Charitable contributions are an itemized deduction unless there is an expectation of commensurate financial return.
Choice "c" is incorrect. Federal income taxes paid are not a deductible expense.
Choice "d" is incorrect. Charitable contributions are an itemized deduction unless there is an expectation of commensurate financial return. Federal income taxes paid are not a deductible expense.



On December 1, 1992, Michaels, a self-employed cash basis taxpayer, borrowed $100,000 to use in her business. The loan was to be repaid on November 30, 1993. Michaels paid the entire interest of $12,000 on December 1, 1992. What amount of interest was deductible on Michaels' 1993 income tax return?

  1. $12,000
  2. $11,000
  3. $1,000
  4. $0

Answer(s): B

Explanation:

Choice "b" is correct. Prepaid interest must be prorated over the time for which payment is made. This is true for both cash and accrual basis taxpayers. The loan is for 1 month in 1992 and 11 months in 1993. Therefore, 1/12 of the interest is deductible in 1992 and 11/12, or $11,000 is deductible in 1993.
Choices "a", "c", and "d" are incorrect. Prepaid interest must be prorated over the time for which payment is made. This is true for both cash and accrual basis taxpayers.



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