CRU EXAM 3 UPDATED ACTUAL QUESTIONS AND CORRECT ANSWER

CRU EXAM 3 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS

Question:
1. Select two. Which of the following describe S corporations?
Answer:
1. Stockholders pay taxes at individual rates based on share of income/loss.
2. They are state-chartered legal entities with a limited number of stockholders (not more than 100) that
elect to be taxed as a partnership.

Question:
2. In a partnership business structure the partnership pays taxes, much like a corporation.
Answer:
False

Question:
3. Income from the U.S. Individual Income Tax Return Form 1040 of a sole proprietor is reported on
which of the following tax schedules?
Answer:
Schedule C (Form 1040), Profit or Loss from Business

Question:
4. Which tax form is used to report income, deductions, gains, losses, etc., from the operations of a
partnership to the IRS?
Answer:
1065

Question:
5. When analyzing tax returns, all of the following are added back in order to income EXCEPT which one?
Answer:
Recurring cash expenses

Question:
6. The Cash Flow Analysis Form 1084 is used to analyze and adjust income from tax returns to determine
qualifying income.
Answer:
True

Question:
7. Form 1125-E, Compensation of Officers is required if the total receipts on Form 1120 are $500,000 or
more, and it can be used to determine the borrower's percentage of ownership interest.
Answer:
True

,Question:
8. Select three. Which of the following are determined by the legal structure of a business?
Answer:
1. The ability of the business to accumulate capital
2. How income or loss is reported to the Internal Revenue Service
3. How taxes are paid to the Internal Revenue Service

Question:
9. When underwriting self-employed borrowers, Fannie Mae and Freddie Mac both require verification of
the existence of the business within how many calendar days prior to the note date?
Answer:
120

Question:
10. Which schedule indicates whether a partner is a general partner or a limited partner?
Answer:
Schedule K-1

Question:
11. When manually underwriting a loan for Freddie Mac with a borrower who is a sole proprietor where
the business has been in existence less than five years, all of the following are always required EXCEPT:
Answer:
?Current balance sheet and profit and loss statement?

Question:
12. For loans to borrowers who are sole proprietors of their own business, at least how many months'
self-employment income must be documented in order for that income to be used for qualifying purposes?
Answer:
Twelve

Question:
13. Select three. Which of the following can be used to identify the borrower's percentage of ownership
interest in a corporation?
Answer:
1. Form 1125-E
2. Schedule G (Form 1120)
3. Letter from the corporate accountant

Question:
14. In reviewing a borrower's corporate tax returns, how should nonrecurring other income reported on line
10 of Form 1120 be handled on Form 1084?
Answer:
It should be subtracted from income.

Question:
15. How should non-deductible travel and meal expenses shown on Schedule C be handled when
completing the cash flow analysis? (Non-deductible Meals and Entertainment Expenses on Form 1084).

, Answer:
They should be subtracted from income.

Question:
16. Select three. When reviewing a loan application for a self-employed borrower, what are the
prerequisites to income calculation?
Answer:
1. Determine business structure
2. Identify method of underwriting
3. Identify documentation requirements

Question:
17. Fannie Mae and Freddie Mac documentation requirements for self-employed borrowers include which
IRS form authorizing the release of information?
Answer:
4506-T

Question:
18. Mortgages, notes, and bonds payable in less than one year should be ______________ the business
income unless there is evidence these obligations roll over regularly.
Answer:
Subtracted from

Question:
19. Income from partnerships is taxed at:
Answer:
Individual tax rates

Question:
20. Which of the following loan programs and/or types must be submitted through one of the agencies'
automated underwriting systems?
Answer:
Affordable Merit Rate mortgages

Question:
21. An acceptable credit reputation of one borrower may not offset an unacceptable credit profile of
another.
Answer:
True

Question:
22. If LPA generates a recommendation of Caution, then the underwriter must evaluate additional layering
of risk associated with the ineligibility.
Answer:
True