A taxpayer requests records from a preparer that must be attached to his tax return. He has not paid the preparation fees yet. If state law permits retention of client records in cases of nonpayment of fees, the preparer may retain the taxpayer”s records. True or false? True. Incorrect. You must turn over records needed to be attached to a tax return, regardless of outstanding […]

Andrea has prepared the following list of statements about corporations. A corporation is an entity separate and distinct from its owners. As a legal entity, a corporation has most of the rights and privileges of a person. Most of the largest U.S. corporations are privately held corporations. Corporations may buy, own, and sell property; borrow money; enter into legally binding contracts; and sue and be […]

A retail business has cash sales of £100,000, the cost of sales for which was £35,000. Salaries of £15,000, rental of £4,000 and advertising of £8,000 have been paid in cash. The owners have contributed equity of £25,000. In addition, the business paid cash of £40,000 for stock and purchased equipment on credit for £20,000. The financial statements of the business would show: a. Profit […]

As an auditor for the CPA firm of Hinkson and Calvert, you encounter the following situations in auditing different clients. LR Corporation is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 5,000 shares of its $20 par value common stock. The owners’ asking price for the land was $120,000, and the fair value of […]

The following balances are shown in alphabetical order in a professional service firm’s accounting system at the end of a financial year: £ Advertising 15,000 Bank 5,000 Equity 71,000 Income 135,000 Equipment 100,000 Payables 11,000 Receivables 12,000 Rent 10,000 Salaries 75,000 Calculate: a. the profit for the year b. the equity at the end of the year

On January 1, 2014, the stockholders’ equity section of Newlin Corporation shows common stock ($5 par value) $1,500,000; paid-in capital in excess of par $1,000,000; and retained earnings $1,200,000. During the year, the following treasury stock transactions occurred. Mar. 1 Purchased 50,000 shares for cash at $15 per share. July 1 Sold 10,000 treasury shares for cash at $17 per share. Sept. 1 Sold 8,000 […]

For each of the following transactions, identify whether there is an increase or decrease in profit, cash flow, assets or liabilities. Profit Income — Assets Transaction Expenses Cash Flow (excluding cash) Liabilities Issues shares to public Borrows money over 5 years Pays cash for equipment Buys inventory on credit Sells goods on credit Pays cash for salaries, rent, etc. Pays cash to suppliers Receives cash […]

Jake, age 48, wants to roll over $50,000 from his qualified plan from his ex-employer to a rollover (non-Roth) IRA. He requests a check and receives $40,000, which he subsequently uses to open an IRA 7 weeks later. Which of the following is the best statement describing Jake”s situation? a. Incorrect. Even if Jake deposits the $40,000 check into an IRA, the $10,000 that was […]

The maximum amount of SE tax a taxpayer can pay in 2012 is: a. Incorrect. $106,800 was the maximum amount of earnings subject to Social Security tax in 2011. b. Incorrect. $110,100 is the maximum amount of earnings subject to Social Security tax in 2012. c. Incorrect. $11,450.40 is the maximum amount of Social Security tax a self-employed taxpayer paid in 2012. d. Correct. Because […]

An individual taxpayer in the United States who cannot file an income tax return by the due date can obtain an automatic filing extension for what period of time: a. Incorrect. Five days is the period in which to electronically resubmit a rejected e-filed individual tax return in order for it to be considered timely. b. Incorrect. The two-month extension applies for taxpayers who are […]