Free CPA Regulation Exam CPA-Regulation Exam Practice Test

On December 1, 1997, Krest, a self-employed cash basis taxpayer, borrowed $200,000 to use in herbusiness. The loan was to be repaid on November 30, 1998. Krest paid the entire interest amount of$24,000 on December 1, 1997. What amount of interest was deductible on Krest's 1997 income tax return?

• $0
• $2,000
• $22,000
• $24,000

Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in taxable income. During 1994, Tom’s daughter Laura, age 16, resided with Tom. Laura had no income of her own and was Tom’s dependent.Determine the amount of income or loss, if any that should be included on page one of the Moores’1994 Form 1040.The Moores received a $500 security deposit on their rental property in 1994. They are required to return the amount to the tenant.

• $0
• $500
• $900
• $1,000
• $1,250
• $1,300
• $1,500
• $2,000
• $2,500
• $3,000
• $10,000
• $25,000
• $50,000
• $55,000
• $75,000

Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in taxable income. During 1994, Tom’s daughter Laura, age 16, resided with Tom. Laura had no income of her own and was Tom’s dependent.Determine the amount of income or loss, if any that should be included on page one of the Moores’1994 Form 1040.During 1994, the Moores received a $2,500 federal tax refund and a $1,250 state tax refund for 1993 overpayments. In 1993, the Moores were not subject to the alternative minimum tax and were not entitled to any credit against income tax. The Moores’ 1993 adjusted gross income was $80,000 and itemized deductions were $1,450 in excess of the standard deduction. The state tax deduction for 1993 was $2,000.

• $0
• $500
• $900
• $1,000
• $1,250
• $1,300
• $1,500
• $2,000
• $2,500
• $3,000
• $10,000
• $25,000
• $50,000
• $55,000
• $75,000

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?

• 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.
• "Otherwise qualified higher education expenses" must be reduced by qualified scholarships not includible in gross income.
• I only.
• II only.
• Both I and II.
• Neither I nor II.

Which of the following sales should be reported as a capital gain?

• Sale of equipment.
• Real property subdivided and sold by a dealer.
• Sale of inventory.
• Government bonds sold by an individual investor.

Which of the following is subject to the Uniform Capitalization Rules of Code Sec. 263A?

• Editorial costs incurred by a freelance writer.
• Research and experimental expenditures.
• Mine development and exploration costs.
• Warehousing costs incurred by a manufacturing company with $12 million in annual gross receipts.

Greller owns 100 shares of Arden Corp., a publicly-traded company, which Greller purchased on January 1, 2001, for $10,000. On January 1, 2003, Arden declared a 2-for-1 stock split when the fair market value (FMV) of the stock was $120 per share. Immediately following the split, the FMV of Arden stock was $62 per share. On February 1, 2003, Greller had his broker specifically sell the 100 shares of Arden stock received in the split when the FMV of the stock was $65 per share. What is the basis of the 100 shares of Arden sold?

• $5,000
• $6,000
• $6,200
• $6,500

Which one of the following will result in an accruable expense for an accrual-basis taxpayer?

• An invoice dated prior to year end but the repair completed after year end.
• A repair completed prior to year end but not invoiced.
• A repair completed prior to year end and paid upon completion.
• A signed contract for repair work to be done and the work is to be completed at a later date.

In which of the following situations may taxpayers file as married filing jointly?

• Taxpayers who were married but lived apart during the year.
• Taxpayers who were married but lived under a legal separation agreement at the end of the year.
• Taxpayers who were divorced during the year.
• Taxpayers who were legally separated but lived together for the entire year.

Don Wolf became a general partner in Gata Associates on January 1, 1989, with a 5% interest in Gata's profits, losses, and capital. Gata is a distributor of auto parts. Wolf does not materially participate in the partnership business. For the year ended December 31, 1989, Gata had an operating loss of $100,000.In addition, Gata earned interest of $20,000 on a temporary investment. Gata has kept the principal temporarily invested while awaiting delivery of equipment that is presently on order. The principal will be used to pay for this equipment. Wolf's passive loss for 1989 is:

• $0
• $4,000
• $5,000
• $6,000