A company has signed a five-year lease for a copier with a six-year useful life. The lease includes the following terms:
A $1 purchase price at the end of the lease
The 59,000 copier will have a 5500 value at the end of the lease
The present value of the minimum lease payments is equal to 91% of the fair market value of the asset
The lease does not transfer ownership to the lessee
Which personal financial decision will influence the current year's federal income tax liability?
Choosing whether to buy or lease a personal vehicle
Making contributions into a ROTH IRA
Making contributions into a 529 college savings plan
Choosing to purchase solar panels for a personal residence
What is a responsibility of a professional tax preparer?
To negotiate a tax refund check issued to the taxpayer
To act in good faith by participating in the audit lottery
To advise a client upon learning of an error
To maintain similar tax liabilities from year to year
Which tax law source has the highest authority for the purpose of general tax research?
General Counsel Memoranda
IRS Revenue Rulings
Determination Letter
Treasury Department Regulations
Which fact influences the decision to create a C corporation?
Owners of a corporation have unlimited liability.
Corporations are subject to the lowest income tax rates
Shareholders in a corporation report corporate income on Schedule C.
Corporations provide the potential to raise unlimited investment capital.
Which entity can deduct the expense attributable to the production and collection of income in an estate?
The administrator of the estate
The fiduciary
The beneficiary
The estate
What is true about the tax treatment of trust income?
Trust income is taxable to the trust.
Trust income is exempt from taxes.
Trust income is taxed under corporate tax rates.
Trust income is taxable to the beneficiary.
What is true about the alternative minimum tax?
It sets a limit on the tax benefits an individual may claim.
It provides options for tax liability calculations.
It influences social behavior to respect tax liability concerns.
It offers incentives to minimize tax liability.
Which item will decrease current tax liability calculated under cash-basis when compared to accrual-basis financial income?
Unrealized loss from a lower of cost or market adjustment
Rental payments received in advance of period of use
Contributions to a defined benefit pension in excess of expense
Accrued loss on pending litigation for product liability suit
How many of the terms listed will require the company to record the copier as a capital asset?
One
Two
Three
Four
Which amount should be debited in a journal entry to record pension expense for a defined-benefit plan?
Projected benefit obligation
Accumulated other comprehensive income
Accrued benefit distributions
Plan assets
How does the presence of a guaranteed residual value in the terms of a capital lease affect periodic journal entries to recognize lease payments?
When the final lease payment is made, the lessee may recognize a gain on the transfer of the leased asset back to the lessor.
By the end of the lease term, amortization from journal entries for periodic lease payments will reduce the balance of the leased asset to zero.
When the final lease payment is made, the lessee may recognize a loss on the transfer of the leased asset back to the lessor.
By the end of the lease term, amortization from journal entries for periodic lease payments will reduce the balance of the lease liability to zero.
A company is constructing a new office building and issues bonds payable to finance the project.
What is the correct journal entry for interest payments on the bonds payable?
DR Building
DR Bonds Payable
CR Cash
DR Building
DR Interest Expense
CR Cash
DR Building
CR Bonds Payable
CR Cash
DR Interest Expense
CR Cash
CR Building
On January 1, 2015, a company issues a statement that it will pay $2,000 cash dividend to shareholders on March 1, 2015.
Which journal entry is made on March 1, 2015?
Cash $2,000
Dividend Payable $2,000
Cash $2,000
Dividend Expense $2,000
Dividend Expense $2,000
Dividend Payable $2,000
Dividend Payable $2,000
Cash $2,000
A company buys a package of securities with the intent of selling them to clients at higher prices over the next three months. The firm ultimately earns a $1 million profit from selling the securities.
How should the firm value these securities and recognize its $1 million gain on its sale?
Value securities based on amortized cost and recognize $1 million gain in other accumulated comprehensive income.
Value securities at fair value and recognize $1 million gain in net income.
Value securities based on amortized cost and recognize $1 million gain in net income.
Value securities at fair value and recognize $1 million gain in other accumulated comprehensive income.
Company A owns a 15% share in Company B as of December 31, 2014. On January 5, 2015, Company A buys an additional 10% stake in Company B.
Which valuation method should be used by Company A after January 5, 2015, to account for its stake in Company B?
Fair value method
Consolidation method
Cost method
Equity method
How does the percentage-of-completion method affect income statement reporting?
Revenues are recognized at the time of payment.
Gross profit is deferred until the time of project completion.
Expenses are deferred until the time of project completion.
Revenues are recognized during the contract period.
