FREE Certified Public Accountant (CPA) Regulation Questions and Answers
The Echo Company had the following income during the current year:
Operating profit = $110,000
$1,100 in dividends from a 20%-owned, taxed domestic business.
How much of the dividends received by the Echo Company should be included in its current year's taxable income?
Explanation:
To solve this problem, we must estimate the number of dividends that will be included in the taxable income of the Echo Company for the upcoming year. Since the rewards were received from domestic corporations with a taxable ownership of 20%, they qualify for an 80% dividends received deduction. This value can be calculated using the formula below:
Dividends = $1,100 - (80% x $1,100)
Dividends = $1,100 - $880
Dividends = $220
Jack Snell designated his wife, Angelica, as the beneficiary of a life insurance policy with a face value of $150,000. This policy provided that, in the event of Jack's passing, the money would be given to Angelica with interest throughout her expected life. What amount should Angelica include in her annual gross income if the insurance company paid her $6,100 and determined her life expectancy to be thirty years?
Explanation:
The amount of the life insurance premium payments that must be deducted from Angelica's gross income must be determined. It is significant to remember that life insurance payouts due to death are not considered income, whether made in one lump sum or over time. If the payments are made in instalments, each year's exclusion equals the policy's principal amount divided by the number of yearly revenues.
Together with his wife, Charlie Smith is submitting a joint tax return. Under a qualified plan, Charlie Smith's employer covers the entire cost of the employee's group term life insurance. Which of the following options best describes the maximum tax-free coverage that Mr Smith's employer may offer?
Explanation:
The maximum amount of tax-free group term life insurance that a company may offer to a worker is being asked for in this inquiry. The first's price
Which of the following must an auditor have an opinion on while auditing an issuer?
I. The audit committee's oversight on internal controls
II. The audit committee's oversight of financial reporting
III. The financial statements
IV. The effectiveness of internal controls
Explanation:
The auditor provides an opinion on the financial statements and the effectiveness of internal controls. The auditor is not required to comment on audit committee oversight.
Which of the following does not constitute a contract's fundamental component?
Explanation:
A contract comprises several crucial components: offer, acceptance, consideration, legal capacity, and validity. Contracts serve as the foundation for many legal matters. It is essential to understand that acceptance describes consent between the parties to a contract. On the other hand, a statute of fraud is not a necessary component. Applying laws of copies depends on the specific facts of each transaction and is case-by-case.
Suppose the 2015 alternative minimum taxable income of Alpha Corporation was $210,000. Which of the following correctly describes the exempt portion of the 2015 alternative minimum taxable income for Alpha Corporation?
Explanation:
This problem asks us to determine the exempt portion of Alpha Corporation's alternative minimum taxable income (AMTI). A corporation is allowed an exemption of up to $40,000 in computing its AMTI; however, this exemption is reduced by twenty-five per cent of the corporation's AMTI of more than $150,000. We can write this by using the following equation:
Exemption = $40,000 - [( Income in excess of $150,000 - $150,000) x 25%]
Substitute and Solve.
Exemption = $40,000 - [($210,000 - $150,000) x 25%]
Exemption = $40,000 - ($60,000 x 25%)
Exemption = $40,000 - $15,000
Exemption = $25,000
True or False: Even if an auditor finds no false statements during an audit, a severe flaw or material weakness may still exist within a corporation.
Explanation:
"True" is the correct response. Even if no false statements are found during an audit, an auditor may not find flaws or significant weaknesses in internal controls.