Case Studies & Practical Application Flashcards
7 cards from real Certified Public Accountant practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Case Studies & Practical Application flashcards as text
A client exchanges a building (FMV $900,000, adjusted basis $500,000) for land (FMV $900,000) in a transaction that qualifies as a like-kind exchange under IRC §1031. What is the recognized gain and basis in the new property?
Answer: No gain recognized; $500,000 carryover basis in land
In a qualifying §1031 exchange with no boot, gain recognition is deferred and the basis in the replacement property equals the relinquished property's adjusted basis.
A CPA notices that a client's revenue in Q4 is unusually high compared to prior quarters and industry benchmarks. What analytical procedure risk does this suggest, and what is the appropriate response?
Answer: Risk of premature or fictitious revenue recognition; extend substantive testing of Q4 revenue transactions
Unusual revenue spikes are a red flag for revenue manipulation; the auditor should perform additional substantive procedures including inspection of contracts and confirmations.
A married couple filing jointly has $350,000 in net investment income and $420,000 in modified AGI. What is the Net Investment Income Tax (NIIT) liability?
Answer: $6,460 (3.8% × $170,000 — the excess of MAGI over the $250,000 MFJ threshold)
NIIT is 3.8% on the lesser of net investment income ($350,000) or the excess of MAGI over the MFJ threshold of $250,000 ($420,000 − $250,000 = $170,000), so tax = 3.8% × $170,000 = $6,460.
A company reports goodwill of $5 million from a 2019 acquisition. Under current US GAAP for a private company using the alternative, how is goodwill accounted for?
Answer: Amortized over a period not to exceed 10 years and tested for impairment only upon a triggering event
Under the FASB private company alternative (ASU 2014-02), goodwill is amortized over up to 10 years and impairment testing is triggered only by a qualifying event.
A CPA is engaged to compile financial statements but discovers that the client's management intentionally omitted substantially all required disclosures. What should the CPA do?
Answer: Withdraw from the engagement if management refuses to include the disclosures
Under AR-C 80, if management omits substantially all disclosures without a stated reason acceptable under the standard, the CPA should withdraw.
A corporation distributes appreciated property (FMV $300,000; basis $100,000) as a dividend to a shareholder. What are the tax consequences to the corporation?
Answer: The corporation recognizes $200,000 gain as if the property were sold at FMV
Under IRC §311(b), a corporation recognizes gain on distributions of appreciated property as if the property were sold for its FMV.
A CPA is auditing a pension plan and finds the projected benefit obligation (PBO) exceeds the fair value of plan assets by $2 million. Under ASC 715, what must the employer report?
Answer: Record a $2 million net pension liability on the balance sheet
ASC 715 requires the funded status of a defined benefit plan to be recognized on the balance sheet; an underfunded plan results in a net pension liability.