MGMT MISC – SU10 Exam Latest 2022/2023

SU10 1. In Year 1, Brun Corp. properly accrued $10,000 for an income item on the basis of a reasonable estimate. In Year 2, Brun determined that the exact amount was $12,000. Which of the following statements is true? A. Brun is required to file an amended return to report the additional $2,000 of income. B. Brun is required to notify the IRS within 30 days of the determination of the exact amount of the item. C. The $2,000 difference is includible in Brun’s Year 2 income tax return. D. The $2,000 difference of income must be included when the reasonable estimate amount is determined. 2. An S corporation engaged in manufacturing has a year end of June 30. Revenue consistently has been more than $30 million under both cash and accrual basis of accounting. The stockholders would like to change the tax status of the corporation to a C corporation using the cash basis with the same year end. Which of the following statements is correct if it changes to a C corporation? A. The year end will be December 31, using the cash basis of accounting. B. The year end will be December 31, using the accrual basis of accounting. C. The year end will be June 30, using the accrual basis of accounting. D. The year end will be June 30, using the cash basis of accounting. 3. In order to adopt a fiscal tax year on its first federal income tax return, a corporate taxpayer must A. Maintain books and records and report income and expenses using the tax year B. Attach a completed Form 1128, Application to Adopt, Change, or Retain a Tax Year, to his or her fiscal-year-basis income tax return. C. File a short-period return D. Get IRS approval 4. ABC, a C corporation, ends its tax year on October 30. When must ABC’s income tax return be filed for the year ending October 30, 2020? A. Jan. 15, 2021 B. March 15, 2021 C. Feb. 15, 2021 D. Apr. 15, 2021 5. Most unincorporated businesses can choose whether to be taxed as a partnership or a corporation. The new regulations provide for a default rule if no election is made. If an election is not made and the default rules apply, which of the following is true? A. Any new domestic eligible entity having at least two or more members is classified as a partnership. B. Any new domestic eligible entity with a single member is disregarded as an entity separate from its owner. C. If all members of a new foreign entity have limited liability, the entity is classified as an association taxed as a corporation. D. All of the answers are correct. 6. In 2020, CPAs, Inc., a corporation owned entirely by its employees, all of whom are certified public accountants performing only services in the accounting profession, had taxable income of $110,000. What is the tax liability of CPAs, Inc., for 2020? A. $11,000 B. $13,200 C. $38,500 D. $23,100 7. Martin Corporation’s (a C corporation) bookkeeper told the owner that she could not have all the tax information ready for the accountant immediately after the tax year end of June 30. She was having surgery and asked if the tax return could be postponed. The accountant’s answer should be: A. No, the return must be filed by September 15. B. Yes, we can request an extension until October 15. C. Yes, we can request an extension until the following April 15. D. No, the return must be filed by October 15. 8. Which of the following entities may adopt any tax year end? A. C corporation B. S corporation C. Partnership D. Trust 9. Which of the following is an advantage of forming a limited liability company (LLC) as opposed to a partnership? A. The entity may avoid taxation B. There is no limit on the number of owners. C. The owner may participate in management while limiting personal liability. D. The entity may make disproportionate allocations and distributions to members. 10. A C corporation must use the accrual method of accounting in which of the following circumstances? A. The business had average sales for the past 3 years of less than $10 million. B. The business is a service company and has over $10 million in sales. C. The business is a personal service business with over $75 million in sales. D. The business has more than $50 million in average sales. 11. One of the elections a new corporation must make is its choice of an accounting period. Which of the following entities has the most flexibility in choosing an accounting period? A. C corporation B. S corporation C. Partnership D. Personal service corporation 12. The selection of an accounting method for tax purposes by a newly incorporated C corporation A. Is made on the initial tax return by using the chosen method B. Is made by filing a request for a private letter ruling from the IRS C. Must first be approved by the company’s board of directors D. Must be disclosed in the company’s organizing documents 13. Which of the following corporations would be taxed as a personal service corporation? A. A real estate brokerage B. A catering service C. An architecture and engineering firm D. A groundskeeping firm 14. In which type of business organization are income taxes always required to be paid by the entity on profits earned as well as by the owners upon distribution thereof? A. General partnership B. Limited liability company C. C corporation D. S corporation 15. In which type of business entity is the entire ownership interest most freely transferable? A. General partnership B. Limited partnership C. Corporation D. Limited liability company 16. Caddo Corporation is owned by three engineers, all of whom are employed by the corporation. It primarily performs civil engineering activities with respect to construction projects. During the current year, Caddo Corporation earned $150,000 of taxable income. Caddo has not elected to be taxed under Subchapter S. What is Caddo’s current-year regular tax liability? A. $15,000 B. $18,000 C. $52,500 D. $31,500 17. Which one of the following statements about the taxation of personal service corporations is false for the current tax year? A. Personal service corporations are subject to the “flat” 21% tax rate only if more than 75% of their gross income is earned income. B. Taxable income of a qualified personal service corporation is taxed at a 21% rate, the same as C corporations. C. Substantially all of the stock of the corporation must be owned by current or retired employees (or their estates or heirs) that are employed performing services for the corporation in connection with activities in certain professional fields. D. The fields covered by the personal service corporation rules are health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting. 18. In Year 1, a domestic LLC with two members elected classification as a corporation. In Year 2, one of the members withdrew from the LLC. What is the LLC’s tax classification for Year 2 immediately after the member withdrew? A. A corporation B. A liquidated corporation for tax purposes. C. A new entity eligible to make a classification election. D. A single-member LLC disregarded as separate from its owner. 19. On December 31, 1998, Homer Corporation issued $2 million of 50-year bonds for $2.6 million. On December 31, 2020, Homer issued new bonds with a face amount of $3 million for which it received $3.4 million. Part of the proceeds received were used to repurchase $2,320,000 of the bonds issued in 1998. No elections were made to adjust the basis of any property. Assume the straight-line method is used for premium amortization. What is the taxable income to Homer on the repurchase of the 1998 bonds? A. $0 B. $16,000 C. $264,000 D. $336,000 20. The following information pertains to treasury stock sold by Lee Corporation to an unrelated broker in the current year: Proceeds received $50,000 Cost 30,000 Par value 9,000 What amount of capital gain should Lee recognize in the current year on the sale of this treasury stock? A. $0 B. $20,000 C. $21,000 D. $41,000 21. John Budd is the sole shareholder of Ral Corp., an accrual-basis taxpayer engaged in whol