AICPA cpa-regulation practice test
CPA Regulation Exam
Question 1
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
Tom received $10,000, consisting of $5,000 each of principal and interest, when he redeemed a
Series EE savings bond in 1994. The bond was issued in his name in 1990 and the proceeds were used
to pay for Lauras college tuition. Tom had not elected to report the yearly increases in the value of
the bond.
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
A
Explanation
"A" is correct. $0. Generally, if a taxpayer does not make an election to accrue interest income from
Series EE bonds, the interest is taxable at the time the bonds are cashed. However, an exception
applies in this case because Tom Moore meets the criteria (assume he was 24 years or older in 1990).
(1) It is used to pay for qualified higher-education expenses for the taxpayer, spouse, or dependents;
(2) There is taxpayer or joint ownership with spouse;
(3) The taxpayer is age 24 (or over) when the bonds are issued; and
(4) The bonds are acquired after 1989.
Question 2
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
In 1994, Joan received $3,500 as beneficiary of the death benefit, which was provided by her
brothers employer. Joans brother did not have a nonforfeitable right to receive the money while
living.
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
A
Explanation
"A" is correct. $0. Life insurance proceeds received by reason of the death of the insured are not
taxable income to the recipient.
Question 3
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
The Moores received a stock dividend in 1994 from Ace Corp. They had the option to receive either
cash or Ace stock with a fair market value of $900 as of the date of distribution. The par value of the
stock was $500.
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
C
Explanation
"C" is correct. $900. If a taxpayer has the option of taking a dividend either in stock or in other
property (e.g., cash), the dividend is taxable regardless of the option the taxpayer selects.
Question 4
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
The Moores received $8,400 in gross receipts from their rental property during 1994. The expenses
for the residential rental property were:
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
I
Explanation
"I" is correct. $2,500. Rental activity net income is reported on page one; the gross income ($8,400) is
fully reportable; and all deductions listed (total = $5,900) are fully deductible for a net of $2,500.
Question 5
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
In 1994, Joan received $1,300 in unemployment compensation benefits. Her employer made a $100
contribution to the unemployment insurance fund on her behalf.
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
F
Explanation
"F" is correct. $1,300. Unemployment compensation benefits are fully taxable (when received by the
employee), but contributions made by the employer to the insurance fund are not taxable.
Question 6
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
During 1994, the Moores received a $2,500 federal tax refund and a $1,250 state tax refund for 1993
overpayments. In 1993, the Moores were not subject to the alternative minimum tax and were not
entitled to any credit against income tax. The Moores 1993 adjusted gross income was $80,000 and
itemized deductions were $1,450 in excess of the standard deduction. The state tax deduction for
1993 was $2,000.
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
E
Explanation
"E" is correct. $1,250. The Moores itemized deductions in 1993 because such deductions were
$1,450 in excess of the standard deduction. The amount of state taxes deducted in 1993 was $2,000,
which (along with the fact that the Moores were not subject to alternative minimum tax, which may
have reduced their tax benefit) indicates that the Moores received a tax benefit in 1993 from
deducting the $1,250 state tax refund they received in 1994. The $1,250 is taxable in 1994.
Question 7
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
Toms 1994 wages were $53,000. In addition, Toms employer provided group-term life insurance on
Toms life in excess of $50,000. The value of such excess coverage was $2,000.
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
A
Explanation
"N" is correct. $55,000. The value of employer-provided group term life insurance for which the face
amount exceeds $50,000 is taxable income to the insured employee and the $53,000 in wages would
both be included on page one, Form 1040.
Question 8
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
The Moores received a $500 security deposit on their rental property in 1994. They are required to
return the amount to the tenant.
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
A
Explanation
"A" is correct. $0. The security deposit is not taxable income because the Moores are required to
return it when the tenant leaves. If the deposit is applied to damages in a later tax year, the portion
the Moores retain would be income to them in the year they retain the deposit, and the money they
spend to repair the damage would be a deduction to them.
Question 9
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
In 1992, Joan received an acre of land as an inter-vivos gift from her grandfather. At the time of the
gift, the land had a fair market value of $50,000. The grandfathers adjusted basis was $60,000. Joan
sold the land in 1994 to an unrelated third party for $56,000.
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
A
Explanation
one for computing gain and another for
computing loss. Joans basis for gain is the grandfathers adjusted basis ($60,000). Using this basis for
$56,000 - $60,000 = ($4,000 loss). Joans basis for loss is the fair market value
$56,000
- $50,000 = $6,000 gain. In this unusual situation, Joan has neither a gain nor a loss, although the
transaction must be reported.
Question 10
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in
taxable income. During 1994, Toms daughter Laura, age 16, resided with Tom. Laura had no income
of her own and was Toms dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores
1994 Form 1040.
The Moores had no capital loss carryovers from prior years. During 1994, the Moores had the
following stock transactions, which resulted in a net capital loss:
A. $0
B. $500
C. $900
D. $1,000
E. $1,250
F. $1,300
G. $1,500
H. $2,000
I. $2,500
J. $3,000
K. $10,000
L. $25,000
M. $50,000
N. $55,000
O. $75,000
Answer:
J
Explanation
"J" is correct. $3,000. The capital loss on Revco ($10,000 loss) is added to the capital gain on Abbco
($4,000) to produce a net capital loss of ($6,000). The Moores can claim $3,000 of the loss on their
1994 income tax return and carry the balance forward to 1995.