AICPA Released Questions from the

2014 Uniform CPA Exam

- Released May 2015 -

REGULATION

Uniform CPA Examination Questions and unofficial Answers, copyright by American Institute of Certified Public
Accountants, Inc. All rights reserved. Reprinted by Roger CPA Review with permission.
 2015 AICPA Released Regulation Questions
Please note: This document contains all the question information released by the AICPA. The table below each question contains
placement data for the question within the exam template from which the question comes. The “Key” value is the correct letter
answer for each preceding question. For best study results, the Roger CPA Review team adds comprehensive solution rationales
when integrating new questions to your course materials.

MULTPLE CHOICE - DIFFICULT

The IRS requested client records from a CPA who does not have possession or control of the records.
According to Treasury Circular 230, the CPA must

A. Notify the IRS of the identity of any person who, according to the CPA’s belief, could have the
records.
B. Require the client to submit the records to the IRS or withdraw from the engagement.
C. Obtain the records from the client and submit them to the IRS.
D. Contact all third parties associated with the records, such as banks and employers, to obtain the
requested records for submission to the IRS.

Attribute Value
Item ID 69871
Area 001
Group 001
Topic 001
Key A

Under Treasury Circular 230, which of the following correctly represents the requirements related to the
communication of fee information from a tax practitioner to a taxpayer:

It may be communicated only through the confidential engagement letter between the tax practitioner and
the taxpayer.
It may be communicated in a number of ways, including in professional lists, telephone directories,
mailings, and electronic mail.
It must be communicated as an estimate before the engagement begins, with the understanding that the
actual amount of the fee will not be determined until the engagement ends.
It may not be communicated by television, radio, or hand-delivered flyers.

Attribute Value
Item ID 71253
Area 001
Group 001
Topic 001
Key B
 2015 AICPA Released Questions – REG

A taxpayer wants to take a position on a tax return that the CPA determines is frivolous. However, the
CPA and the taxpayer determine that the possibility of the return being selected for audit is remote and
that even if the return is selected for audit the issue most likely will not be raised. According to the AICPA
Statements on Standards for Tax Services, under these circumstances the CPA

A. Can sign or prepare the return with this position as long as the CPA advises the taxpayer that the
position is frivolous.
B. Cannot sign or prepare the return with this position.
C. Can sign or prepare the return with this position because there is a realistic possibility that the
position will not be challenged.
D. Can sign or prepare the return with this position if the taxpayer signs a tax preparer waiver of
liability.

Attribute Value
Item ID 73905
Area 001
Group 001
Topic 002
Key B

Which of the following types of debtor are not eligible for relief under Chapter 11 of the Bankruptcy
Code?

A. Individuals.
B. Railroads.
C. Airlines.
D. Stockbrokers.

Attribute Value
Item ID 59959
Area 002
Group 004
Topic 002
Key D

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 2015 AICPA Released Questions – REG

Which of the following statements is correct regarding the taxes payable under the Federal
Unemployment Tax Act (FUTA)?

A. Liability arises only when wages are actually, not constructively, paid to employees.
B. Credits for this tax are allowed to employers for certain state unemployment taxes paid by the
employer.
C. The amount is withheld from the wages of all employees.
D. The amount is determined as a percentage of all compensation paid to an employee.

Attribute Value
Item ID 60715
Area 002
Group 005
Topic 002
Key B

In a principal-agent relationship that is not contractual, which of the following remedies is not available to
the agent whose principal is guilty of violating a duty owed the agent?

A. Recovery for past services.

B. Recovery for future damages.
C. Specific performance.
D. Withholding further performance.

Attribute Value
Item ID 61075
Area 002
Group 001
Topic 002
Key C

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 2015 AICPA Released Questions – REG

An individual client asks a CPA to determine whether the client is solvent for federal tax purposes. The
client has assets consisting of cash and marketable securities with a basis of $250,000 and a fair market
value of $155,000. The client has liabilities of $175,000, which include $130,000 of nondischargeable
liabilities under the Bankruptcy Code. Which of the following statements is correct?

A. The client is insolvent since the client's liabilities exceed the fair market value of the client's
assets by $20,000.
B. The CPA is unable to determine whether the client is solvent or insolvent because the CPA is not
an accredited appraiser.
C. The client is solvent because the fair market value of the client's assets exceeds the client's
nondischargeable debt by $25,000.
D. The client is solvent because the basis of the client's assets totals $250,000 and exceeds the
client's liabilities by $75,000.

Attribute Value
Item ID 70181
Area 002
Group 004
Topic 002
Key A

In which of the following situations will a controlled foreign corporation located in Ireland be deemed to
have Subpart F income?

A. Services are provided by an Irish company in England under a contract entered into by its U.S.
parent.
B. Property is produced in Ireland by the Irish company and sold outside its country of incorporation.
C. Services are performed in Ireland by the Irish company under a contract entered into by its U.S.
parent.
D. Property is bought from the controlled foreign corporation's U.S. parent and is sold by an Irish
company for use in an Irish manufacturing plant.

Attribute Value
Item ID 71203
Area 003
Group 007
Topic 000
Key A

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 2015 AICPA Released Questions – REG

Kuo sells residential rental property to his son, Karl for $100,000. Karl gives Kuo $1,000 and an
installment note for the balance of $99,000. Kuo's basis is $50,000. Karl pays Kuo $4,000 in year 1. In
year 2, after paying Kuo $5,000, Karl sells the property for $70,000. Which of the following statements
about this situation is correct?

A. Kuo should report the entire gain of $50,000 in year 1 because installment sales of depreciable
property are not allowed between related parties..
B. Kuo should report $2,500 gain in year 1.
C. Kuo should report the entire gain of $50,000 in year 1 because Karl disposed of the land within
two years of purchase.
D. Kuo should report a $49,000 gain in year 2.

Attribute Value
Item ID 72317
Area 003
Group 004
Topic 004
Key B

A husband and wife agree to split monetary gifts to their relatives. The husband gives his daughter
$20,500, and the wife gives her niece $17,000. The annual exclusion is $12,000. What amount is the
taxable gift for the husband and wife?

A. $0.
B. $13,500
C. $17,000.
D. $37,500.

Attribute Value
Item ID 63329
Area 004
Group 007
Topic 002
Key A

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 2015 AICPA Released Questions – REG

If a security becomes worthless in the current taxable year, it is treated as sold or exchanged on

A. The last day of the preceding taxable year.

B. The last day of the current taxable year.
C. The date it is deemed worthless.
D. The first day of the current taxable year.

Attribute Value
Item ID 65887
Area 004
Group 002
Topic 000
Key B

Mike and Carol, a married couple, have two assets at the time of Mike's death: a $10,000,000 life
insurance policy owned by Mike naming Carol as the sole beneficiary, and $8,000,000 of real estate
owned by the couple as joint tenants with right of survivorship. What is the amount of the marital
deduction to Mike's estate for these two assets?

A. $9,000,000.
B. $10,000,000.
C. $14,000,000.
D. $18,000,000.

Attribute Value
Item ID 71567
Area 004
Group 007
Topic 004
Key C

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 2015 AICPA Released Questions – REG

Logan, an employee of Argon Industries, earned a salary of $60,000 in year 2. In addition, the following
two transactions between Logan and Argon occurred in year 2: Logan received a bonus of 100 shares of
publicly-traded stock worth $13,000 with a basis to Argon of $8,000, and Logan purchased 1,000 shares
of unrestricted Argon stock pursuant to a nonqualifying stock option plan for $10 per share when stock
was valued at $25 per share. What amount of compensation should Argon report in Logan's Form W-2 for
year 2?

A. $60,000
B. $73,000
C. $88,000
D. $93,000

Attribute Value
Item ID 68447
Area 005
Group 001
Topic 001
Key C

Flowers, a married taxpayer, purchased an annuity for $64,400 that will pay $700 per month over the life
of Flowers and Flowers' spouse. At the time of purchase the couple's joint life expectancy was 23 years.
Flowers received payment beginning April 1, year 1 amounting to $6,300 in the first year of the annuity
contract. How much is includible in Flowers' gross income in the first year?

A. $0
B. $2,100
C. $4,200
D. $6,300

Attribute Value
Item ID 69443
Area 005
Group 006
Topic 000
Key C

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 2015 AICPA Released Questions – REG

Four years ago, an individual taxpayer purchased silver coins at face value for $200. The coins were
stolen in the current year, when their fair market value was $1,000. The coins were not covered by
insurance. Without considering the limit based on AGI, what is the maximum amount of loss that the
taxpayer can deduct on the current-year's tax return?

A. $100
B. $200
C. $900
D. $1,000

Attribute Value
Item ID 71829
Area 005
Group 003
Topic 000
Key A

An S corporation had the following income and expenses:

Sales $240,000
Rent expense 25,000
Entertainment expense 5,000
Interest income 1,500
Contributions to qualifying charities 600
Section 179 expense 3,000
Depreciation expense 1,800

What would be reported as ordinary income on the corporation's income tax return?

A. $206,100
B. $208,600
C. $210,700
D. $213,200

Attribute Value
Item ID 60537
Area 006
Group 004
Topic 002
Key C

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 2015 AICPA Released Questions – REG

Dove and Eagle formed a business entity in which they are equal owners. Dove contributed cash of
$100,000, and Eagle contributed land with a basis of $40,000 and fair market value of $100,000. For its
first year of operations, the entity had taxable income of $60,000 and made no distributions. At year end it
had outstanding recourse liabilities to third parties of $10,000. Eagle had a basis of $70,000 in the entity
at the end of the first year of operations. What type of entity was formed?

A. C corporation.
B. S corporation.
C. General partnership.
D. Limited liability company (LLC).

Attribute Value
Item ID 63185
Area 006
Group 001
Topic 001
Key B

Jetson and Tomson are equal partners in JT Partnership, which has the following income and expense
items:
Sales $100,000
Interest income from checking account 1,000
Charitable contributions 3,000
Employee wages 4,000
Cost of goods sold 50,000

What is the nonseparately stated partnership income?

$43,000
$44,000
$46,000
$47,000

Attribute Value
Item ID 63549
Area 006
Group 005
Topic 001
Key C

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 2015 AICPA Released Questions – REG

Borasco Corp. owns land with a fair market value of $200,000. Borasco purchased the land 10 years ago
for $65,000 and owes a liability of $50,000 as of August 2 of the current year. Alvo Corp. owns 100% of
Borasco. Borasco is completely liquidated on August 2 of the current year, according to a plan adopted
on June 18 of the current year. As a result, the land is transferred to Alvo in complete cancellation of
Borasco's stock. What basis does Alvo have in the land it receives?

A. $15,000
B. $65,000
C. $150,000
D. $200,000

Attribute Value
Item ID 72071
Area 006
Group 001
Topic 004
Key B

What is the tax rate for an S corporation that pays tax on built-in gains?

A. The calculated income tax rate of the corporation.

B. The income tax rate of the shareholder.
C. The highest individual income tax rate.
D. The highest corporate income tax rate.

Attribute Value
Item ID 73915
Area 006
Group 004
Topic 005
Key D

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 2015 AICPA Released Questions – REG

MULTIPLE CHOICE - MODERATE

The partnership of Rodgers & Higgs, CPAs, performed audits of Alt Corp., a publicly-traded company, for
the past several years. After issuing the current year's audit report, the CFO of Alt confessed to having
committed fraud against Alt. Under which of the following statutes would the investors most likely bring
suit against Rodgers & Higgs?

A. Securities Act of 1933, if they can prove ordinary negligence.

B. Securities Act of 1933, if they can prove gross negligence.
C. Securities Exchange Act of 1934, if they can prove ordinary negligence.
D. Securities Exchange Act of 1934, if they can prove scienter.

Attribute Value
Item ID 64687
Area 001
Group 003
Topic 002
Key D

In which of the following circumstances would a tax return preparer be prohibited from disclosing a client's
tax return information?

A. The information will be needed for a peer review.

B. The information will be provided in response to a court order.
C. The information will be provided to a section 501(c)(3) charity.
D. The information will be used to prepare state or local tax returns.

Attribute Value
Item ID 66653
Area 001
Group 003
Topic 003
Key C

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 2015 AICPA Released Questions – REG

Under the Statements on Standards for Tax Services, what is a CPA's responsibility for verifying
information furnished by the taxpayer or third parties?

A. A CPA need not make additional inquiries if the information furnished appears to be incorrect,
incomplete, or inconsistent with other facts known to the CPA.
B. A CPA need not consider implications of information furnished if the information comes directly
from a third party.
C. A CPA may, in good faith, rely on information furnished by the taxpayer or by third parties without
verification.
D. A CPA should not refer to the taxpayer's previous tax returns unless the returns report
transactions that affect the current tax period.

Attribute Value
Item ID 71499
Area 001
Group 001
Topic 002
Key C

Which of the following contractual assignments is prohibited?

A. The right to receive royalties.

B. The right to be insured under a liability insurance policy.
C. The right to receive installment payments.
D. The rights under an option contract.

Attribute Value
Item ID 60103
Area 002
Group 002
Topic 003
Key B

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 2015 AICPA Released Questions – REG

Under which of the following circumstances would a promoter be relieved of personal liability on contracts
entered into while engaged in forming a corporation?

A. When the bylaws of the corporation expressly adopt all preincorporation contracts without
novation.
B. When the corporation unknowingly accepts the benefits of the contract.
C. When the contracting party verbally agrees to relieve the promoter.
D. When the third party, the corporation, and the promoter enter into an agreement to substitute the
corporation for the promoter.

Attribute Value
Item ID 63695
Area 002
Group 006
Topic 002
Key D

Under the Negotiable Instruments Article of the UCC, which of the following defenses could be
successfully asserted by the drawer of a draft against a holder in due course of that draft?

A. The drawer issued the draft to the payee because of the payee's fraudulent representations
concerning the value of the property the payee was transferring to the drawer in return for the
draft.
B. The drawer issued the draft as a gift to the original payee, without the drawer receiving any
consideration or value for it.
C. The drawer was discharged from the obligation in bankruptcy after the issuance of the draft.
D. The drawer issued the draft as bearer paper, and it was transferred by the original holder to the
next holder without an endorsement.

Attribute Value
Item ID 73425
Area 002
Group 003
Topic 002
Key C

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 2015 AICPA Released Questions – REG

The two equal shareholders of a C corporation are thinking of filing an election to have the company
treated as an S corporation. Which of the following consequences is an advantage of this election?

A. The corporation's net operating loss carryovers from prior years are immediately deductible by
the shareholders.
B. The corporation's tax-free fringe benefits for the shareholders will be deductible by the
corporation.
C. The shareholders of the S corporation will be taxed only on distributions from the corporation.
D. The corporation's capital losses can be claimed on the tax returns of the shareholders.

Attribute Value
Item ID 72459
Area 003
Group 006
Topic 003
Key D

Benson exchanged a van, used exclusively for business and with an adjusted basis of $100,000, for a
new van with a fair market value of $120,000 and received $5,000 in cash. What amount of gain did
Benson recognize from the transaction?

A. $0
B. $5,000
C. $20,000
D. $25,000

Attribute Value
Item ID 56793
Area 004
Group 004
Topic 000
Key B

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 2015 AICPA Released Questions – REG

Which of the following items qualifies for treatment under Section 1231 (Property Used in the Trade or
Business and Involuntary Conversions)?

A. Copyright used in the business, held for 10 years.

B. Building used in the business, held for six months.
C. Machinery used in the business, held for eleven months.
D. Computer used in the business, held for four years.

Attribute Value
Item ID 63237
Area 004
Group 001
Topic 000
Key D

A personal services corporation may deduct payments made to owner-employees only in the year in
which the

A. Corporation is formed.
B. Expense is accrued on the books and records of the corporation.
C. Corporation makes a valid S election.
D. Owner-employee includes it in income.

Attribute Value
Item ID 64941
Area 004
Group 006
Topic 000
Key D

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 2015 AICPA Released Questions – REG

An individual taxpayer reports the following information:

U.S. Treasury bond income $ 100
Municipal bond income 200
Rental income 500
Investment interest expense 1,000

What amount of investment interest can the taxpayer deduct in the current year?

A. $100
B. $300
C. $800
D. $1,000

Attribute Value
Item ID 61621
Area 005
Group 003
Topic 000
Key A

As a result of a divorce, a taxpayer received the following during the current year:
Cash from the property settlement $100,000
Child support 12,000
Alimony payments 30,000

What amount, if any, must be included in gross income for the current year?

A. $0
B. $30,000
C. $130,000
D. $142,000

Attribute Value
Item ID 72133
Area 005
Group 001
Topic 001
Key B

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 2015 AICPA Released Questions – REG

Thompson's spouse died in year 1. Thompson did not remarry in year 2 and lived alone the entire year.
What is Thompson's year 2 filing status?

A. Married filing jointly.

B. Surviving spouse.
C. Head of household.
D. Single.

Attribute Value
Item ID 73923
Area 005
Group 007
Topic 000
Key D

Paige, a 25% shareholder in an S corporation, had a stock basis of $10,000 at the beginning of the year.
The corporation had ordinary income of $200,000 for the year. There were no separately stated items.
Paige received wages from the corporation of $25,000 and a distribution of $30,000. What was Paige's
basis in the stock at year end?

A. $0
B. $5,000
C. $30,000
D. $35,000

Attribute Value
Item ID 61717
Area 006
Group 004
Topic 003
Key C

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 2015 AICPA Released Questions – REG

Kline and Salomon form the KS Partnership as 50/50 partners. Kline contributes equipment that has a fair
market value of $60,000 and an adjusted basis of $45,000. In addition, the equipment is subject to a
$10,000 loan that KS Partnership is assuming. What amount represents Kline's initial basis in the
partnership?

A. $35,000
B. $40,000
C. $45,000
D. $60,000

Attribute Value
Item ID 62901
Area 006
Group 005
Topic 002
Key B

Parent company X and subsidiary company Y file a calendar year consolidated federal income tax return.
Company X reported a $120,000 tax loss, which included a $10,000 dividend from Y. Company Y
reported $140,000 of taxable income, which included $30,000 of dividends received from less than 20%
owned stock investments. Neither company took into account any applicable dividends received
deduction. What is the group's consolidated tax loss for the year?

A. ($1,000)
B. ($4,000)
C. ($11,000)
D. ($20,000)

Attribute Value
Item ID 66541
Area 006
Group 003
Topic 006
Key C

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 2015 AICPA Released Questions – REG

Which of the following is a disadvantage of a revocable trust?

A. The grantor will be subject to gift taxes on the transfer of property to the trust.
B. The trust assets are subject to being probated upon the death of the grantor.
C. The grantor loses power to control the trust funds for federal estate tax purposes.
D. The trust is included in the gross estate of the grantor.

Attribute Value
Item ID 69499
Area 006
Group 006
Topic 001
Key D

IRC Section 263A requires the capitalization of certain indirect costs related to inventory when a
qualifying business is manufacturing tangible personal property. Which of the following costs is
not required to be capitalized as part of this adjustment?

A. Marketing.
B. Recruiting.
C. Payroll.
D. Securities services.

Attribute Value
Item ID 60605
Area 003
Group 004
Topic 002
Key A

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 2015 AICPA Released Questions – REG

A company terminated its S corporation status for the current tax year. When can the company reelect S
status?

A. Immediately.
B. Third year from the current tax year.
C. Fifth year from the current tax year.
D. Cannot reelect in future.

Attribute Value
Item ID 64285
Area 006
Group 004
Topic 001
Key C

The CPA was preparing the financial statement for a limited liability company. To which of the following
would the CPA's report be addressed?

A. Member.
B. Shareholder
C. General partner.
D. Limited partner.

Attribute Value
Item ID 64619
Area 002
Group 006
Topic 001
Key A

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 2015 AICPA Released Questions – REG

TASK-BASED SIMULATIONS (TBS)

Task 637_01

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 2015 AICPA Released Questions – REG

Selection List – Column B, Tax Return Dates (all MOs)

22
 2015 AICPA Released Questions – REG

Task 562_01

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 2015 AICPA Released Questions – REG

Task 3773_01

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