Enrolled Agent Exam Prep - Part 2 Questions and correct
answers EXAM, WITH VERIFIED SOLUTIONS correct 2025!!
Which form of business entity is not a legal entity separate and apart from its owner?
A. Corporation
B. Partnership
C. Sole proprietorship
D. S corporation - ANSWER: C
Under which circumstance is an entity required to apply for a new employer identification number?
A. Proprietorship that incorporates
B. Business name change
C. Electing or revoking S corp status
D. 50% change of interest in partnership within 12 months. - ANSWER: A
LLC's may be an attractive small business alternative as opposed to an S corp because LLC's offer the following
advantage(s) not available in S corps:
A. Inclusion of entity-level liabilities in tax basis
B. Pass-through taxation
C. Flexibility in types of owners and ownership interest
D. Both inclusion of entity-level liabilities in tax basis and flexibility in types of owners and ownership interests. -
ANSWER: D
A domestic LLC with at least two members that does not file Form 8832, Entity Classification Election, is classified as
A. An entity disregarded as an entity separate from its owners by applying the rules in Regulations Section 301.7701-
3
B. A partnership
,C. A corporation
D. A non-entity that requires members to report the income and related expenses on Form 1040 - ANSWER: B
Which of the following statements regarding accounting methods is false?
A. If inventories are necessary, the accrual method is used for sales and purchases
B. A combination (hybrid) method is not an acceptable method of accounting
C. A change from the accrual to the cash method of accounting requires consent from the IRS
D. Under the cash method of accounting, gross income includes all items of income actually or constructively
received during the year - ANSWER: B
You can compute your taxable income under which of the following accounting methods?
A. Hybrid method
B. Accrual method
C. Special method for certain items
D. All of the answers are correct - ANSWER: D
Which of the following accounting changes do not require the filing of Form 3115 to request a change in accounting
method?
A. Correction of a math error
B. Change from accrual method to cash method
C. Change in the method inventory is valued
D. Change from cash method to accrual method - ANSWER: A
Which of the following accounting methods is not an acceptable method of reporting income and expenses?
A. If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales.
You can use the cash method for all other items of income and expenses.
B. If you use the cash method for figuring your income, you can use the accrual method for figuring your expenses.
, C. Any combination that includes the cash method is treated as the cash method.
D. You can use different accounting methods for reporting business and personal items. - ANSWER: B
Generally, all of the following entities may use the cash method of accounting except
A. A family farming corporation with gross receipts of $25 million or less.
B. An entity with no inventories and average gross receipts of $5 million or less.
C. A qualified personal service corporation.
D. A corporation that has long-term contracts. - ANSWER: D
A cash-basis taxpayer should report gross income
A. Only for the year in which income is actually received in cash.
B. For the year in which income is either actually or constructively received in cash only.
C. Only for the year in which income is actually received whether in cash or in property.
D. For the year in which income is either actually or constructively received, whether in cash or in property. -
ANSWER: D
Erin earned $1000 in interest in 2014. Erin withdrew $700 in 2015 and $300 in 2016. How much of the original $1000
should Erin report as interest earned in 2016?
A. $0
B. $300
C. $700
D. $1000 - ANSWER: A
Which of the following statements is not correct?
A. Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize
expenses in the year incurred.
answers EXAM, WITH VERIFIED SOLUTIONS correct 2025!!
Which form of business entity is not a legal entity separate and apart from its owner?
A. Corporation
B. Partnership
C. Sole proprietorship
D. S corporation - ANSWER: C
Under which circumstance is an entity required to apply for a new employer identification number?
A. Proprietorship that incorporates
B. Business name change
C. Electing or revoking S corp status
D. 50% change of interest in partnership within 12 months. - ANSWER: A
LLC's may be an attractive small business alternative as opposed to an S corp because LLC's offer the following
advantage(s) not available in S corps:
A. Inclusion of entity-level liabilities in tax basis
B. Pass-through taxation
C. Flexibility in types of owners and ownership interest
D. Both inclusion of entity-level liabilities in tax basis and flexibility in types of owners and ownership interests. -
ANSWER: D
A domestic LLC with at least two members that does not file Form 8832, Entity Classification Election, is classified as
A. An entity disregarded as an entity separate from its owners by applying the rules in Regulations Section 301.7701-
3
B. A partnership
,C. A corporation
D. A non-entity that requires members to report the income and related expenses on Form 1040 - ANSWER: B
Which of the following statements regarding accounting methods is false?
A. If inventories are necessary, the accrual method is used for sales and purchases
B. A combination (hybrid) method is not an acceptable method of accounting
C. A change from the accrual to the cash method of accounting requires consent from the IRS
D. Under the cash method of accounting, gross income includes all items of income actually or constructively
received during the year - ANSWER: B
You can compute your taxable income under which of the following accounting methods?
A. Hybrid method
B. Accrual method
C. Special method for certain items
D. All of the answers are correct - ANSWER: D
Which of the following accounting changes do not require the filing of Form 3115 to request a change in accounting
method?
A. Correction of a math error
B. Change from accrual method to cash method
C. Change in the method inventory is valued
D. Change from cash method to accrual method - ANSWER: A
Which of the following accounting methods is not an acceptable method of reporting income and expenses?
A. If an inventory is necessary to account for your income, you must use an accrual method for purchases and sales.
You can use the cash method for all other items of income and expenses.
B. If you use the cash method for figuring your income, you can use the accrual method for figuring your expenses.
, C. Any combination that includes the cash method is treated as the cash method.
D. You can use different accounting methods for reporting business and personal items. - ANSWER: B
Generally, all of the following entities may use the cash method of accounting except
A. A family farming corporation with gross receipts of $25 million or less.
B. An entity with no inventories and average gross receipts of $5 million or less.
C. A qualified personal service corporation.
D. A corporation that has long-term contracts. - ANSWER: D
A cash-basis taxpayer should report gross income
A. Only for the year in which income is actually received in cash.
B. For the year in which income is either actually or constructively received in cash only.
C. Only for the year in which income is actually received whether in cash or in property.
D. For the year in which income is either actually or constructively received, whether in cash or in property. -
ANSWER: D
Erin earned $1000 in interest in 2014. Erin withdrew $700 in 2015 and $300 in 2016. How much of the original $1000
should Erin report as interest earned in 2016?
A. $0
B. $300
C. $700
D. $1000 - ANSWER: A
Which of the following statements is not correct?
A. Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize
expenses in the year incurred.
