CPA Exam Preparation Test Questions
Course Introduction
This course is designed to comprehensively prepare students for the Certified Public Accountant (CPA) examination by covering key topics and skills essential for success in all four exam sections: Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR), and Regulation (REG). Through a blend of structured lectures, practice questions, simulated exams, and test-taking strategies, students will reinforce foundational accounting concepts, enhance critical thinking abilities, and master exam techniques. Emphasis is placed on effective study planning, ethical considerations, and real-world applications, ensuring candidates are thoroughly equipped to excel on the CPA exam and advance their professional accounting careers.
Recommended Textbook
South Western Federal Taxation 2013 Corporations Partnerships Estates and Trusts 36th Edition
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Page 2
Chapter 1: Understanding and Working With the Federal Tax Law
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Sample Questions
Q1) A jury trial is available in a court of appeals situation.
A)True
B)False Answer: False
Q2) The American Opportunity scholarship credit can be justified by economic considerations.
A)True
B)False Answer: False
Q3) A technical advice memorandum is issued by:
A)Treasury Department.
B)National Office of the IRS.
C)Office of Chief Council.
D)Area Director.
E)None of the above.
Answer: B
Q4) Revenue neutrality means that any one taxpayer's tax liability remains the same.
A)True
B)False Answer: False
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Chapter 2: Corporations: Introduction and Operating Rules
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Sample Questions
Q1) A calendar year C corporation with average annual gross receipts of $5 million or less must use the cash method of accounting.
A)True
B)False
Answer: False
Q2) Eagle Company,a partnership,had a short-term capital loss of $10,000 during the year.Aaron,who owns 25% of Eagle,will report $2,500 of Eagle's short-term capital loss on his individual tax return.
A)True
B)False
Answer: True
Q3) Because of the taxable income limitation,no dividends received deduction is allowed if a corporation has an NOL for the current taxable year.
A)True
B)False
Answer: False
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Chapter 3: Corporations: Special Situations
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Sample Questions
Q1) Tanver Corporation,a calendar year corporation,has alternative minimum taxable income of $7 million in 2012 (before adjustment for adjusted current earnings).If Tanver's adjusted current earnings is $16 million,its tentative minimum tax for 2012 is:
A)$310,000.
B)$2,750,000.
C)$6,750,000.
D)$7,000,000.
E)Some other amount.
Answer: B
Q2) If QPAI cannot be used in any one year due to the TI limitation,it can be carried over for 3 years.
A)True
B)False
Answer: False
Q3) What are some of the differences (at least three)between the application of the AMT for individuals and corporations?
Answer: 11ea86f8_672a_2d43_8b27_072ebe0e4de3_TB4128_00
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Page 5
Chapter 4: Corporations: Organization and Capital Structure
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Sample Questions
Q1) Nick exchanges property (basis of $100,000;fair market value of $3 million),for 65% of the stock of Yellow Corporation.The other 35% of the stock is owned by Gloria who acquired it several years ago.What are the tax consequences to Nick?
Q2) In a § 351 transfer,a shareholder receives boot of $10,000 but ends up with a realized loss of $3,000.Only $7,000 of the boot will be taxed to the shareholder.
A)True
B)False
Q3) To help avoid the thin capitalization problem,it is advisable to make the repayment of the debt contingent upon the corporation's earnings.
A)True
B)False
Q4) Because services are not considered property under § 351,a taxpayer must report as income the fair market value of stock received for such services.
A)True
B)False
Q5) What is the rationale underlying the tax deferral treatment available under § 351?
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Chapter 5: Corporations: Earnings Profits and Dividend
Distributions
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Sample Questions
Q1) Use of MACRS cost recovery when computing taxable income does not require an E & P adjustment.
A)True
B)False
Q2) Samantha owns stock in Pigeon Corporation (basis of $80,000)as an investment.Pigeon distributes property (fair market value of $300,000;basis of $150,000)to her during the year.Pigeon has current E & P of $20,000 and accumulated E & P of $80,000 and makes no other distributions during the year.What is Samantha's capital gain on the distribution?
A)$0.
B)$80,000.
C)$120,000.
D)$150,000.
E)None of the above.
Q3) Goldfinch Corporation distributes stock rights to its shareholders.How is the basis of the stock rights received by Goldfinch's shareholders determined?
Q4) A distribution in excess of E & P is treated as capital gain by shareholders.
A)True
B)False
Page 7
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Chapter 6: Corporations: Redemptions and Liquidations
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Sample Questions
Q1) When is a redemption to pay death taxes under § 303 most advantageous?
Q2) Explain the stock attribution rules that apply in the case of stock redemptions.
Q3) The stock in Tangerine Corporation is held by two unrelated individuals,Janet (60%)and Joaquin (40%).One year before the liquidation of Tangerine,the shareholders transfer properties to the corporation in a transaction that qualifies under § 351.Included in that transfer was land (basis of $600,000,fair market value of $650,000).Pursuant to its liquidation in the current year,Tangerine Corporation distributes the land (now worth $500,000)pro rata to the shareholders.What amount of loss will Tangerine recognize on the distribution?
A)$0.
B)$40,000.
C)$60,000.
D)$100,000.
E)None of the above.
Q4) The built-in loss limitation in a complete liquidation does not apply to losses attributable to a decline in a property's fair market value after its transfer to the corporation.
A)True
B)False
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Chapter 7: Corporations: Reorganizations
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Sample Questions
Q1) Burl Corporation has assets with a value of $500,000 (basis of $300,000)and liabilities of $350,000.Wood Corporation is considering merging with Burl by exchanging 30% of its voting stock and $50,000 cash for Burl.
A)This restructuring can qualify as a "Type A" merger only if Wood acquires all of Burl's assets and liabilities.
B)This restructuring can qualify as a "Type B" only if Wood acquires substantially all of Burl's assets.
C)This restructuring can qualify as a "Type C" only if Wood acquires none of Burl's liabilities.
D)This restructuring cannot qualify as a tax-free reorganization for Burl because its liabilities are in excess of the basis of its assets.
E)None of the above.
Q2) The continuity of interest requires that all target shareholders receive some acquiring stock.
A)True
B)False
Q3) Discuss the role of letter rulings in corporate reorganizations.
Q4) Compare an acquisitive "Type D" reorganization with the "Type C" reorganization.
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Page 9
Chapter 8: Consolidated Tax Returns
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Sample Questions
Q1) Most of the rules governing the use of consolidated returns are found in tax ____________________,and not the ____________________.
Q2) To be part of a Federal consolidated return,an entity cannot be ineligible to join an affiliated group.List three or more business entities that cannot be part of a Federal consolidated tax return group.
Q3) Over time,the consolidated return rules have shifted from penalizing joint filing to allowing a tax-neutral means by which to elect to file on a consolidated basis.
A)True
B)False
Q4) Which of the following potentially is a disadvantage of electing to file a Federal consolidated corporate income tax return?
A)Recognition of losses from certain intercompany transactions is deferred.
B)The taxation of intercompany dividends is not eliminated.
C)The tax basis of investments in the stock of subsidiaries is unaffected by members contributing to consolidated taxable income.
D)The § 1231 loss of one member is not offset against the § 1231 gain of another member of the group.
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Chapter 9: Taxation of International Transactions
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Sample Questions
Q1) USCo,a domestic corporation,purchases inventory for resale from distributors within the U.S.and resells this inventory to customers outside the U.S. ,with title passing outside the U.S.What is the source of the USCo's inventory sales income?
A)50% U.S.source and 50% foreign source.
B)50% foreign source and 50% sourced based on location of manufacturing assets.
C)100% U.S.source.
D)100% foreign source.
Q2) WorldCo,a foreign corporation not engaged in a U.S.trade or business,receives
$50,000 in interest income from deposits with the foreign branch of a U.S.bank.The U.S.bank earns 78% of its income from foreign sources.How much of WorldCo's interest income is U.S.source?
A)$0.
B)$11,000.
C)$39,000.
D)$50,000.
Q3) Subpart F income includes portfolio income like dividends and interest.
A)True
B)False
Q4) Discuss the primary purposes of income tax treaties.
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Chapter 10: Partnerships: Formation, operation, and Basis
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Sample Questions
Q1) Julie and Kate form an equal partnership during the current year.Julie contributes cash of $160,000,and Kate contributes property (adjusted basis of $90,000,fair market value of $260,000)subject to a nonrecourse liability of $100,000.As a result of these transactions,Kate has a basis in her partnership interest of $40,000.
A)True
B)False
Q2) In the current year,the POD Partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities,and $20,000 as a distribution to partner Olivia.In addition,the partnership earned $6,000 of long-term capital gains during the year.Partner Donald owns a 50% interest in the partnership.How much income must Donald report for the tax year?
A)$68,000 ordinary income.
B)$78,000 ordinary income.
C)$65,000 ordinary income;$3,000 of long-term capital gains.
D)$75,000 ordinary income;$3,000 of long-term capital gains.
E)None of the above.
Q3) The "outside basis" is defined as a partner's basis in the partnership interest.
A)True
B)False
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Page 12
Chapter 11: Partnerships: Distributions, transfer of Interests, and Terminations
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Sample Questions
Q1) Lori,a partner in the JKL partnership,received a proportionate nonliquidating distribution of $10,000 cash,unrealized receivables with a basis of $0 and a fair market value of $15,000,and land with a basis of $6,000 and a fair market value of $10,000.Her basis in the partnership interest immediately before the distributions was $14,000.She will recognize $0 gain on the distribution,and her basis in the receivables and land will be $0 and $4,000 respectively.
A)True
B)False
Q2) Aaron owns a 30% interest in a continuing partnership.The partnership distributes a $35,000 year-end cash payment to all the partners.In a proportionate nonliquidating distribution,the partnership also distributed property (basis of $15,000,fair market value of $20,000)to Aaron.Immediately before the distribution,Aaron's basis in the partnership interest was $50,000.As a result of the distribution,Aaron recognizes:
A)No gain or loss.
B)Ordinary loss of $5,000.
C)Capital loss of $5,000.
D)Ordinary gain of $5,000.
E)Capital gain of $5,000.
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Chapter 12: S: Corporations
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Sample Questions
Q1) If a resident alien shareholder moves outside the U.S. ,the S election is terminated.
A)True
B)False
Q2) Charitable contributions are subject to a 10% limitation at the S corporation level.
A)True
B)False
Q3) List some of the separately stated items listed on Schedule K of the Form 1120S.
Q4) A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to an S corporation on February 14.By the end of the year,$60,000 of these receivables are collected.Calculate any built-in gains tax,assuming that there is sufficient taxable income.
A)$0.
B)$10,000.
C)$21,000.
D)$35,000.
Q5) Advise your client how income,expenses,gain,and losses are allocated to shareholders of an S corporation.
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Page 14
Chapter 13: Comparative Forms of Doing Business
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Sample Questions
Q1) If an S corporation distributes appreciated property as a dividend,it must recognize gain as to the appreciation.
A)True
B)False
Q2) Which of the following are "reasonable needs" that will help a corporation in avoiding the accumulated earnings tax?
A)The corporation is opening locations in neighboring cities.
B)Funds are used to make a loan to a major shareholder.
C)The corporation uses funds for the redemption of the stock of a disgruntled shareholder.
D)Not making distributions helps to minimize the combined shareholder/corporation tax liabilities.
E)All of the above.
Q3) After a § 721 contribution by a partner to a partnership,the partner's basis for his or her ownership interest is the same as the basis of the assets contributed (no liabilities are involved).
A)True
B)False
Q4) Do the § 465 at-risk rules treat recourse debt and nonrecourse debt differently?
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Chapter 14: Taxes on the Financial Statements
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Sample Questions
Q1) How does an auditor determine whether a valuation allowance is needed against an entity's deferred tax asset? List some of the factors than an auditor will consider in this regard.
Q2) Larson,Inc. ,hopes to report a total book tax expense of $160,000 in the current year.This $160,000 expense consists of $240,000 in current tax expense and an $80,000 tax benefit related to the expected future use of an NOL by Larson.If the auditors determine that a valuation allowance of $30,000 must be placed against Larson's deferred tax assets,what is Larson's total book tax expense?
A)$130,000.
B)$160,000.
C)$190,000.
D)$240,000.
Q3) Only U.S.corporations are included in a combined GAAP financial statement.
A)True
B)False
Q4) A deferred tax asset is the current tax benefit (savings)associated with income or expense to be reported in future year GAAP financial statements.
A)True B)False
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Chapter 15: Exempt Entities
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Sample Questions
Q1) The Dispensary is a pharmacy that is part of a § 501(c)(3)hospital.Its primary mission is to dispense medicines for hospital patients.In addition,the pharmacy dispenses medicines to former hospital patients for a period of up to 30 days after discharge from the hospital.It does this for the dual purpose of convenience to the former patients (i.e. ,the closest pharmacy is 6 miles away),and to ensure that the former patients receive the medicines that have been prescribed for them.
Q2) Robin,Inc. ,an exempt organization,acquired a building for $500,000 which it will lease to XYZ,Inc. ,for $35,000 annually.To finance the acquisition of the building,Robin secures a mortgage on it of $312,500.Advise Robin as to whether it has any unrelated debt-financed income or deductions.
Q3) If the unrelated business income of an exempt organization is $20,000 or less,the unrelated business income tax (UBIT)will be $0.
A)True
B)False
Q4) Personal property rental income is subject to and real property rental income is not subject to the unrelated business income tax.
A)True
B)False
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Page 17
Chapter 16: Multistate Corporate Taxation
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Sample Questions
Q1) A state can levy an income tax on a business only if the business was incorporated in the state.
A)True
B)False
Q2) In the broadest application of the unitary theory,the U.S.unitary business files a combined tax return using factors and income amounts for all affiliates:
A)Organized in the U.S.
B)Organized in NAFTA countries.
C)Organized anywhere in the world.
D)As dictated by the tax treaties between the U.S.and the other countries.
Q3) When the taxpayer operates in one or more unitary states:
A)Apportionment factors are computed on a group-wide basis.
B)The tax incentive of creating nexus in a low-tax state is enhanced.
C)The tax benefit of a passive investment subsidiary holding company is neutralized.
D)The use of a water's edge election should be considered.
E)All of the above are true.
Q4) In determining taxable income for state income tax purposes,the state NOL deduction typically constitutes a(n)____________________ modification.
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Page 18
Chapter 17: Tax Practice and Ethics
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Sample Questions
Q1) The penalty for substantial understatement of tax liability does not apply if:
A)The taxpayer has substantial authority for the treatment taken on the tax return.
B)The relevant facts affecting the treatment are adequately disclosed in the return or on Form 8275.
C)The IRS failed to meet its burden of proof in showing the taxpayer's error.
D)All of the above statements are correct.
Q2) According to the IRS,the annual "Tax Gap" totals about $______________________ billion. or
Q3) In taking a dispute to the Appeals Division,a written protest is required of the taxpayer when the proposed deficiency exceeds $____________________.
Q4) In connection with the taxpayer penalty for substantial understatement of tax liability,what defenses (if any)are available?
Q5) Circular 230 prohibits a tax preparer from charging an unconscionable fee for his/her services.
A)True B)False
Q6) To file for a tax refund,an individual generally uses Form ____________________.
Page 19
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Chapter 18: The Federal Gift and Estate Taxes
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Q1) Rachel owns an insurance policy on the life of Albert with Belle as the designated beneficiary.Upon Rachel's prior death,nothing regarding this policy is included in her gross estate.
A)True
B)False
Q2) Becky made taxable gifts in 1974,2010,and 2012.In computing the gift tax on the 2012 gift,she must consider all of the prior taxable gifts.
A)True
B)False
Q3) What is the justification for the terminable interest rule that is applicable to the marital deduction?
Q4) At the time of Dylan's death,he was a resident of Newark.He owns land located in a foreign country,which is subject to that country's death tax.This same land also can be subject to the Federal estate tax.
A)True
B)False
Q5) For estate tax purposes,what is the difference between a surviving spouse's share of the community property and a dower (or courtesy)interest?
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Chapter 19: Family Tax Planning
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Q1) At the time of her death in 2012,Lila owns 50% of the stock in Kingfisher Corporation,with the balance of the stock held by family members.Kingfisher Corporation's total profits for the past five years are $3,000,000,and the book value of its stock is $2,000,000.If 8% is an appropriate rate of return and goodwill exists,what is a possible value for the stock to be included in Lila's gross estate?
Q2) Ramon sells a parcel of land (basis of $100,000;fair market value of $300,000)to his church.As long as the selling price does not exceed $100,000,Ramon recognizes no gain on the sale.
A)True B)False
Q3) Describe the various tax advantages that are available from donating a conservation easement to charity.
Q4) If depreciable property is passed by death,any depreciation recapture potential carries over to the heir.
A)True
B)False
Q5) What is the major disadvantage of an estate freeze using common and preferred stock in a corporation? Major advantage?
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Chapter 20: Income Taxation of Trusts and Estates
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Q1) In the year in which an estate terminates,its beneficiaries receive and can use as their own any unexpired NOL carryforwards proportionately to the corpus assets that they received.
A)True
B)False
Q2) Which of the following is the annual maximum amount to be included as gross income by all of the income beneficiaries of the trust or estate?
A)Distributable net income.
B)Entity taxable income.
C)Adjusted gross income.
D)Fiduciary accounting income.
Q3) The Chen Trust is required to distribute its accounting income every year,one-half to Missy Chen,and one-half to the local church's homeless shelter.What is the Chen Trust's personal exemption?
A)$600.
B)$300.
C)$100.
D)$0.
Q4) The Form 1041 of a calendar-year trust is due on ____________________ 15.
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