All the darkness in the world cannot extinguish the light from a single candle. St. Francis of Assisi

Transcription

1 All the darkness in the world cannot extinguish the light from a single candle. St. Francis of Assisi Supplementary Study Guide to Accompany the Quarterly CPE Exam on Topics Addressed in the Journal of Accountancy Fourth Quarter (October December), 2015 Instructions: Before you start a section of the CPE Final Exam, complete the corresponding section of this Supplementary Study Guide. Do NOT submit answers to the Review Questions. Purpose: To provide an interactive learning experience by listing Learning Objectives and Review Questions with Suggested Answers and Explanations. OUTLINE: The section numbers of Study Guide correspond to section numbers of the Final Exam. The page numbers below refer to the first page of each article in the printed version of the JoA. Sections I III Relate to the Journal of Accountancy of October 2015: Section I. Two Articles on Crowdfunding: Crowdfunding Brings New Opportunities for CPAs (Page 38) Crowdfunding and Income Taxes (Page 44) Section II. Benefits of an Employee Stock Ownership Plan in Succession Planning (Page 64) Section III. Three Tax Columns: From The Tax Adviser: Estimated Tax Issues for Divorcing Couples (Page 69), Tax Practice Corner: PTO and Constructive Receipt (Page 70), and Tax Matters (Page 72) Sections IV VII Relate to the Journal of Accountancy of November 2015: Section IV. Highlights of Fraud Research (Page 40) Section V. Startup Costs: Book vs. Tax Treatment (Page 54) Section VI. Converting from C to S Corp. May Be Costlier than You Think (Page 64) Section VII. Three Tax Columns: From The Tax Adviser: Advantages of the Up-C Partnership Structure (Page 72), Tax Practice Corner ABLE: A Tax Planning Tool for People with Disabilities (Page 74), and Tax Matters (Page 76) Sections VIII X Relate to the Journal of Accountancy of December 2015 Section VIII. A Step Up in Standards for Peer Reviewers (Page 54) Section IX. Don't Let Foreign Currency Fluctuations Impair Performance Measurements (Page 60) Section X. Tax Columns: From The Tax Adviser: Employer Health Care Information Reporting Requirements (Page 68), Tax Matters (Page 72) Business Tax Quick Guide Tax year 2015 (Insert following Page 72)

2 The course objectives are stated in each of the following sections. Section I. Two Articles on Crowdfunding: Crowdfunding Brings New Opportunities for CPAs (Page 38 of October JoA) Crowdfunding and Income Taxes (Page 44 of October JoA) Section I Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 1 through 5. Section I Course Objectives: 1. To describe the process of as well as types of crowdfunding. 2. To describe income tax consequences of crowdfunding to both the funder and the recipient of the funds. Section I Review Questions: 1. Kickstarter and Indiegogo are examples of crowdfunding platforms. a. Rewards-based b. Equity c. Donation-based 2. GoFundMe is an example of a(n) crowdfunding platform. a. Rewards-based b. Equity c. Donation-based 3. SEC regulations released in March 2015 allow businesses to raise up to $ million in 12 months and accept investments from unaccredited investors. a. 2 b. 5 c. 10 d. 25 e Which of the following address(es) crowdfunding? a. The Internal Revenue Code. b. IRS guidance. c. Both a and b. d. Neither a nor b. 5. A crowdfunding campaign creator who has at least credit card transactions totaling at least $ in a year will receive a 1099-K, Payment Card and Third Party Network Transactions. a $35,000 b $25,000 c $15,000 d. A, b and c e. A and b but not c Section I Solutions and Suggested Responses to Review Questions follow on next page.

3 Section I. Solutions and Suggested Responses to Review Questions: Review Question 1. (Please see page 39 of October JoA.) a. Correct. Rewards-based crowdfunding involves raising capital by soliciting small amounts of money from a large number of investors, over the internet. b. Incorrect. Equity crowdfunding are associated with offering prospective investors an opportunity to invest in shares of companies, subject to SEC regulations released in March c. Incorrect. Donation-based crowdfunding enables individuals, groups, and not-for-profit organizations to raise money typically through the Internet. d. Incorrect. Kickstarter and Indiegogo are examples of rewards-based crowdfunding platforms. Review Question 2. (Please see page 40 of October JoA.) a. Incorrect. Rewards-based crowdfunding involves raising capital by soliciting small amounts of money from a large number of investors, over the internet. b. Incorrect. Equity crowdfunding are associated with offering prospective investors an opportunity to invest in shares of companies, subject to SEC regulations released in March c. Correct. GoFundMe and YouCaring are examples of donation-based crowdfunding. Donation-based crowdfunding enables individuals, groups, and not-for-profit organizations to raise money typically through the Internet. Review Question 3. (Please see page 40 of October JoA.) a. Incorrect. SEC regulations allow businesses to raise more than this amount in 12 months. b. Incorrect. SEC regulations allow businesses to raise more than this amount in 12 months. c. Incorrect. SEC regulations allow businesses to raise more than this amount in 12 months. d. Incorrect. SEC regulations allow businesses to raise more than this amount in 12 months. e. Correct. SEC regulations allow businesses to raise up to $50 million in 12 months from accept investments from unaccredited investors. Review Question 4. (Please see page 46 of October JoA.) a. Incorrect. The Internal Revenue Code does not address crowdfunding. b. Incorrect. IRS guidance does not address crowdfunding. c. Incorrect. Neither the Internal Revenue Code nor IRS guidelines addresses crowdfunding. d. Correct. Because neither the Internal Revenue Code nor IRS guidelines address crowdfunding, the information in this course cannot be regarded as a definitive guide but rather considerations for exploring each taxpayer's individual situation to assess possible tax treatments. Review Question 5. (Please see page 45 of October JoA.) a. Incorrect. This is part of but not the entire answer. b. Incorrect. This is part of but not the entire answer. c. Incorrect. No 1099-K would be required. d. Incorrect. Because the taxpayer in scenario c would not receive a 1099-K, this option is not correct. e. Correct. A campaign creator who collects over $20,000 and has 200 credit card transactions in a year will receive a Form 1099-K reporting unadjusted gross income. Reminder: After you complete each section of the Study Guide, proceed to the final exam (the CPE Exam ) and answer the matching section's exam questions. =================================== End of Section I REFERRAL INCENTIVE PROGRAM - WE LL PAY YOU FOR REFERRING NEW QUALIFYING CUSTOMERS: Receive $10 for each new customer you refer to us. For every new qualifying customer who pays for an exam and mentions your name, we ll send you a check for $10. It s as simple as that. We welcome any questions by either phone or .

4 Section II. Benefits of an Employee Stock Ownership Plan in Succession Planning (Page 64 of October JoA) Section II Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 6 through 10. Section II Course Objectives: 1. To describe how employee stock ownership plans (ESOPs) work. 2. To describe how ESOPs can be useful in succession planning. Section II Review Questions: 1. ESOPs provide numerous benefits to business owners: a. While they are still actively engaged in the business. b. Only after they are retired from the business. 2. ESOPs: a. Allow the owner of the business to sell the business either immediately or gradually. b. Allow the employer to transfer control without borrowing to purchase the owner's shares. c. Create a market for the owner to sell shares when no other market exists. d. A, b and c. e. A and b but not c. 3. An ESOP borrow money to purchase shares to fund itself. a. Can b. Cannot 4. Which of the following may potentially increase the tax benefits of an ESOP? a. A charitable remainder annuity trust (CRAT). b. A charitable remainder unitrust (CRUT). c. A family limited partnership (FLP). d. A, b and c. e. A and b but not c. 5. Gifts to a family limited partnership may be interests in property. a. Present b. Future c. Either a or b d. Neither a nor b Solutions and Suggested Responses to Review Questions appear on next page.

5 Section II Solutions and Suggested Responses to Review Questions: Review Question 1. (Please see page 65 of October JoA.) a. Correct. Business owners can set up ESOPs while they are still actively engaged in the business. By doing so, they can begin to transfer ownership interests to the ESOP and diversify their investments. b. Incorrect. Owners do not have to wait until they are retired to begin enjoying the benefits of ESOPs. Review Question 2. (Please see page 65 of October JoA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. d. Correct. This is the only complete answer provided because ESOPs allow the owner of the business to sell the business immediately or gradually, transfer control without borrowing to purchase the owner's shares and also create a market for the owner to sell shares when no other market exists. e. Incorrect. A, b and c are all part of the complete answer. Review Question 3. (Please see page 65 of October JoA.) a. Correct. An ESOP can borrow money to purchase shares to fund itself. In most cases, the company borrows money from an external lender and then lends the money to the ESOP to purchase shares. b. Incorrect. This arrangement allows the company to make contributions to the ESOP to repay the loan, and as the loan is repaid, the shares are released from a suspense account and allocated to the participants. Review Question 4. (Please see page 66 of October JoA.) a a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. Family limited partnerships offer excellent estate planning potential, and these benefits can potentially be multiplied by using an ESOP in conjunction with trusts such as CRUTs or CRATs. d. Correct. This is the only complete answer provided. e. Incorrect. A, b and c are all part of the complete answer. Review Question 5. (Please see page 67 of October JoA.) a. Correct. Gifts to a family limited partnership must be present interests as opposed to future interests. b. Incorrect. Gifts of future interests do not count. As Wimmer demonstrates, for a gift to qualify as a present interest, the donor must prove that the partnership would generate income, some portion of the income would flow steadily into the donees, and that portion of the income could be readily ascertained. c. Gifts of present interest quality but gifts of future interests do not. d. Gifts of present interest quality but gifts of future interests do not. =========================================End of Section II. REFERRAL INCENTIVE PROGRAM - WE LL PAY YOU FOR REFERRING NEW QUALIFYING CUSTOMERS: Receive $10 for each new customer you refer to us. For every new qualifying customer who pays for an exam and mentions your name, we ll send you a check for $10. It s as simple as that. We welcome any questions by either phone or .

6 Section III. Three Tax Columns: From The Tax Adviser: Estimated Tax Issues for Divorcing Couples (Page 69), Tax Practice Corner: PTO and Constructive Receipt (Page 70), and Tax Matters (Page 72) Section III Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 11 through 15. Section III Course Objectives: Section III Course Objectives: 1. To describe issues associated with divorcing couples' dividing estimated tax payments. 2. To describe issues associated with divorcing couples' dividing overpayments on past jointlyfiled returns. 3. To describe potential tax traps for employees and employers associated with the paid-time-off (PTO) policies. Section III Review Questions: 1. After a couple filed joint income tax returns for prior years, they filed separate returns in the current year due to a divorce. Estimated tax payments for the current year are generally credited: a. Equally to each taxpayer listed on the return. b. To each taxpayer in proportion to income earned. c. To the first person listed on the return. d. To the second person listed on the return. 2. Paid-time-off (PTO) includes offered as a benefit. a. Vacation b. Sick leave c. Personal leave d. A, b and/or c e. A or b but not c 3. A majority of the organizations surveyed offered: a. Paid-time-off (PTO). b. A PTO cashout-out option. c. Both a and b. d. Neither a nor b. 4. The Knudsen case demonstrates that the qualified offer applies to: a. Settlement. b. Contracts. 5. In McMillan, the Tax Court held that the IRS that the noise and other factors had no impact on McMillan's business use of the condominium. a. Failed to prove b. Provided proof Solutions and Suggested Responses to Review Questions appear on next page.

7 Section III Solutions and Suggested Responses to Review Questions: Review Question 1. (Please see page 69 of October JoA.) a. Incorrect. Such estimated tax payments are typically credited to the first person listed on the previous year's joint tax return even if the taxpayers request that estimated tax payments be credited to one taxpayer. b. Incorrect. Such estimated tax payments are typically credited to the first person listed on the previous year's joint tax return even if the taxpayers request that estimated tax payments be credited to one taxpayer. c. Correct. Such estimated tax payments are typically credited to the first person listed on the previous year's joint tax return regardless of what taxpayers may request. d. Incorrect. Such estimated tax payments are typically credited to the first person listed on the previous year's joint tax return regardless of what taxpayers may request. Review Question 2. (Please see page 70 of October JoA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. d. Correct. This is the only complete answer provided. PTO includes vacation, sick leave as well as personal leave. e. Incorrect. PTO includes vacation, sick leave as well as parental leave. Review Question 3. (Please see page 70 of October JoA.) a. Correct. 53% of organizations surveyed offered paid time off combining vacation, sick leave and personal days. b. Incorrect. Only 16% of organizations surveyed offered a PTO cash-out option. c. Incorrect. A majority of organizations surveyed offered paid-time-off. d. Incorrect. Less than a fifth of organizations surveyed offered a PTO cash-out option. Review Question 4. (Please see page 75 of October JoA.) a. Incorrect. A qualified offer does not apply to settlements. b. Correct. Qualified offers can be applied to contracts. Review Question 5. (Please see page 79 of October JoA.) a. Correct. Because the IRS failed to prove that the noise and other factors had no impact on McMillan's business use of the condominium, the legal fees and related costs were not exclusively personal. b. Incorrect. The Tax Court held that the IRS failed to prove that the noise and other factors had no impact on the taxpayer's business use of the condominium. =========================================End of Section III. REFERRAL INCENTIVE PROGRAM - WE LL PAY YOU FOR REFERRING NEW QUALIFYING CUSTOMERS: Receive $10 for each new customer you refer to us. For every new qualifying customer who pays for an exam and mentions your name, we ll send you a check for $10. It s as simple as that. We welcome any questions by either phone or .

8 Section IV. Highlights of Fraud Research (Page 40 of November Journal of Accountancy.) Section IV Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 15 through 20. Section IV Course Objectives: 1. To describe how recent fraud research has brought new insights into fraud prevention and detection. 2. To describe results of specific research and the implications for audit success or failure. Section IV Review Questions: 1. A recent Kroll report stated that of businesses reported at least one fraud in a. 30% b. 40% c. 50% d. 60% e. 70% 2. Studies have shown that persons committing fraudulent acts dislike most to be investigated via interaction. a. Face-to-face b. Telephone c. Electronic communications such as 3. The most common way that frauds are detected is through: a. External audits. b. Internal audits. c. Employee tips. d. Law enforcement agencies. 4. Which of the following is a nonfinancial measure? a. Sales. b. Gross profit. c. Net income. d. Total assets. e. Number of retail outlets. 5. In research of how much auditors use nonfinancial measures, studies showed that of the auditors used nonfinancial measures to develop their expectations. a. Less than one-third b. Between 40% and 50% c. Between 50% and 60% d. Between 60% and 75% e. More than 75% Section IV Solutions and Suggested Responses to Review Questions appear on the next page.

9 Section IV Solutions and Suggested Responses to Review Questions: Review Question 1. (Please see page 41 of November JoA.) a. Incorrect. According to the Kroll report, the percentage of organizations reporting fraud in was greater than 30%. b. Incorrect. According to the Kroll report, the percentage of organizations reporting fraud in was greater than 40%. c. Incorrect. According to the Kroll report, the percentage of organizations reporting fraud in was greater than 50%. d. Incorrect. According to the Kroll report, the percentage of organizations reporting fraud in was greater than 60%. e. Correct. According to the Kroll report, the percentage of organizations reporting fraud in was greater than 70%. Review Question 2. (Please see page 41 of November JoA.) a. Incorrect. Studies have shown that persons committing fraudulent acts dislike electronic communications such as more than face-to-face communications. b. Incorrect. Studies have shown that persons committing fraudulent acts dislike electronic communications such as more than telephone communications. c. Correct. Studies have shown that persons committing fraudulent acts dislike electronic communications such as more than face-to-face or telephone communications, perhaps out of a belief that s create more a permanent record than either face-to-face or telephone communications. Review Question 3. (Please see page 43 of November JoA.) a. Incorrect. External audits do detect a large number of frauds but not as many as employee tips. b. Incorrect. Internal audits do detect a large number of frauds but not as many as employee tips. c. Correct. These other resources do detect a large number of frauds but not as many as employee tips. d. Incorrect. Law enforcement agencies do detect a large number of frauds but not as many as employee tips. Review Question 4. (Please see page 44 of November JoA.) a. Incorrect. An organization's sales represent an important financial measure. b. Incorrect. An organization's gross profit represents an important financial measure. c. Incorrect. An organization's net income represents an important financial measure. d. Incorrect. An organization's total assets represent an important financial measure. e. Correct. The number of retail outlets is an important nonfinancial measure. Other examples might be the number of new customers, the number of inquiries from new prospects, new product developments, etc. None of these are shown in the financial statements but are nevertheless often equally important in assessing an organization's success or failure. Review Question 5. (Please see page 44 of November JoA.) a. Correct. It is somewhat troubling that fewer than one-third of the auditors in the research study used nonfinancial measures to develop their expectations. b. Incorrect. Unfortunately, fewer than 40% of the auditors in the study used nonfinancial measures to develop their expectations. c. Incorrect. Unfortunately, fewer than 40% of the auditors in the study used nonfinancial measures to develop their expectations. d. Incorrect. Unfortunately, fewer than 40% of the auditors in the study used nonfinancial measures to develop their expectations. e. Incorrect. Unfortunately, fewer than 40% of the auditors in the study used nonfinancial measures to develop their expectations End of Section IV. REFERRAL INCENTIVE PROGRAM - WE LL PAY YOU FOR REFERRING NEW QUALIFYING CUSTOMERS: Receive $10 for each new customer you refer to us. For every new qualifying customer who pays for an exam and mentions your name, we ll send you a check for $10. It s as simple as that. We welcome any questions by either p

10 Section V. Startup Costs: Book vs. Tax Treatment (Page 54 of November JoA) Section V Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 21 through 26. Section V Course Objectives: 1. To describe the accounting for startup costs for financial accounting purposes. 2. To describe the accounting for startup costs for tax purposes. 3. To describe the differences between financial accounting for startup costs vs. for tax reporting purposes. Section V Review Questions: 1. For purposes, all startup costs must be expensed in the year incurred. a. Financial accounting b. Tax c. Both a and b d. Neither a nor b 2. For purposes, all startup costs are generally combined and treated the same way. a. Financial accounting b. Tax c. Both a and b d. Neither a nor b 3. Do acquisition costs that are incurred after a taxpayer decides to acquire a particular business qualify as startup costs? a. Yes. b. No. 4. For tax purposes, a taxpayer may elect to deduct up to of startup cost in the year that the active conduct of the business begins. a. $0 b. $5,000 c. $10,000 d. $15,000 e. $50, For tax purposes, a taxpayer may elect to deduct up to of goodwill in the year that the active conduct of the business begins. a. $0 b. $5,000 c. $10,000 d. $15,000 e. $50,000 Section V Solutions and Suggested Responses to Review Questions appear on next page.

11 Section V Solutions and Suggested Responses to Review Questions: Review Question 1. (Please see page 55 of November JoA.) a. Correct. Financial accounting standards require that startup costs be expensed in the year incurred. b. Incorrect. For tax purposes, a taxpayer may capitalize startup costs or deduct up to $5,000 (subject to limitations) in the year the business begins operating and then amortize remainder over 180 months. c. Incorrect. The rules for accounting for startup costs vary between financial accounting purposes and tax laws. d. Incorrect. The rules for accounting for startup costs vary between financial accounting purposes and tax laws. Review Question 2. (Please see page 55 of November JoA.) a. Correct. For financial accounting purposes, all startup costs are generally lumped together while they are separated into several categories for tax purposes. b. Incorrect. For tax purposes, startup costs may be categorized as startup costs, organizational costs and Sec. 197 intangible costs, etc. c. Incorrect. For financial accounting purposes, they are all lumped together. d. Incorrect. For tax purposes, they are separated into numerous categories. Review Question 3. (Please see page 56 of November JoA.) a. Incorrect. Such costs are not categorized as startup costs. b. Correct. Such acquisition costs must be capitalized. Review Question 4. (Please see page 56 of November JoA.) a. Incorrect. Sec. 195(b)(1)(A) permits such a taxpayer to deduct up to $5,000. b. Correct. Sec. 195(b)(1)(A) permits a taxpayer that elects to deduct and amortize startup cost to deduct up to $5,000 of startup costs in the year that active conduct of the business begins. c. Incorrect. Sec. 195(b)(1)(A) permits a taxpayer that elects to deduct and amortize startup cost to deduct up to $5,000 (but not $10,000) of startup costs in the year that active conduct of the business begins. d. Incorrect. Sec. 195(b)(1)(A) permits a taxpayer that elects to deduct and amortize startup cost to deduct up to $5,000 (but not $25,000) of startup costs in the year that active conduct of the business begins. e. Sec. 195(b)(1)(A) permits a taxpayer that elects to deduct and amortize startup cost to deduct up to $5,000 (but not $50,000) of startup costs in the year that active conduct of the business begins. Review Question 5. (Please see page 60 of November JoA.) a. Correct. A taxpayer may not deduct any cost for goodwill or other intangible assets listed in Sec. 197 except through amortization. This is one of the differences between recovering the costs of Sec. 197 intangibles and startup costs. b. Incorrect. A taxpayer may not deduct any cost for goodwill or other intangible assets listed in Sec. 197 except through amortization. This is one of the differences between recovering the costs of Sec. 197 intangibles and startup costs. c. Incorrect. A taxpayer may not deduct any cost for goodwill or other intangible assets listed in Sec. 197 except through amortization. This is one of the differences between recovering the costs of Sec. 197 intangibles and startup costs. d. Incorrect. A taxpayer may not deduct any cost for goodwill or other intangible assets listed in Sec. 197 except through amortization. This is one of the differences between recovering the costs of Sec. 197 intangibles and startup costs. ===================================== End of Section V. REFERRAL INCENTIVE PROGRAM - WE LL PAY YOU FOR REFERRING NEW QUALIFYING CUSTOMERS: Receive $10 for each new customer you refer to us. For every new qualifying customer who pays for an exam and mentions your name, we ll send you a check for $10. It s as simple as that. We welcome any questions by either phone or .

12 Section VI. Converting from C to S Corp. May Be Costlier than You Think (Page 64 of November 2015 JoA) Section VI Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 26 through 30. Section VI Course Objectives: 1. To describe the implications of changing from a flowthrough entity such as an S corp to a C corp on valuation of the entity. 2. To describe the implications of Gross and Estate of Gallagher to entity selection. Section VI Review Questions: 1. Which of the following forms of business entity may be liable for federal income tax? a. C corporations. b. S corporations. c. Both a and b. d. Neither a nor b. 2. Which of the following are examples of flowthrough entities? a. S corporations. b. C corporations. c. Both a and b. d. Neither a nor b. 3. With which of the following does income tax play a role in the computation of appraised value? a. C corporations. b. S corporations. c. Both a and b. d. Neither a nor b. 4. There is a(n) relationship between the capitalization rate and the appraised fair market value of a business. a. Directly proportional b. Inverse 5. In which of the following cases did the IRS prevail? a. Wall. b. Estate of Adams. c. Dallas. d. All of the above. e. None of the above. Section VI Solutions and Suggested Responses to Review Questions appear on the next page.

13 Section VI Solutions and Suggested Responses to Review Questions: Review Question 1: (Please see page 65.) a. Correct. C corporations that earn taxable income are subject to federal income tax. b. Incorrect. S corporations are simply passthrough entities and do not themselves pay income tax; instead they pass income and the associated income tax liability along to their owners. The owners themselves are responsible for paying the federal income tax. c.incorrect. Of the two, only C corporations are liable for income tax. d. Incorrect. Of the two, only C corporations are liable for income tax. Review Question 2. (Please see page 65.) a. Correct. S corporations are examples of passthrough entities in that they do not themselves pay income tax. The income passes through to its owner(s). b. Incorrect. C corporations are subject to income tax and therefore are not passthrough entities. c. Incorrect. Of the two, only S corporations are passthrough entities. d. Incorrect. Of the two, only S corporations are passthrough entities. Review Question 3. (Please see page 67.) a. Incorrect. Because S corporations do not pay income taxes, no income taxes are subtracted from income before income tax; therefore net income will be a larger amount because no income tax is subtracted to arrive at the S corporation's net income. This yields a higher net present value of future streams of income compared to valuations of C corporations. b. Correct. Income taxes are subtracted to arrive at net income of C corporations; therefore, holding everything else constant, the present value of a stream of smaller annual incomes (reduced by the annual tax liability) results in a lower valuation when compared to an S corporation. c. Incorrect. Income taxes affect C corporations but not S corporations. d. Incorrect. Income taxes affect C corporations but not S corporations. Review Question 4. (Please see page 67.) a. Incorrect. If the cap rate were lowered, the appraised FMV would be higher. See b below. b. Correct. A lower capitalization rate would result in a higher appraised FMV. The example on Page 67 shows a C corporation with a net income of $60 and a capitalization rate of 15% with a resulting appraised FMV of $400 (i.e., $600 divided by 0.15). Alternatively, a (smaller) capitalization rate of only 10% would result in a higher appraised FMV of $600 (i.e., $60 divided by 0.10.) Review Question 5. (Please see page 67.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. d. Correct. The IRS has long followed a policy of not honoring valuations that have reduced the valuations of S corporations based on the fact that their annual incomes used in their valuations were not reduced by income tax liabilities. e. Incorrect. The IRS has long followed a policy of not honoring valuations that have reduced the valuations of S corporations based on the fact that their annual incomes used in their valuations were not reduced by income tax liabilities. ====================================== End of Section VI REFERRAL INCENTIVE PROGRAM - WE LL PAY YOU FOR REFERRING NEW QUALIFYING CUSTOMERS: Receive $10 for each new customer you refer to us. For every new qualifying customer who pays for an exam and mentions your name, we ll send you a check for $10. It s as simple as that. We welcome any questions by either phone or .

14 Section VII. Three Tax Columns: From The Tax Adviser: Advantages of the Up-C Partnership Structure (Page 72), Tax Practice Corner ABLE: A Tax Planning Tool for People with Disabilities (Page 74), and Tax Matters (Page 76) Section VII Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 31 through 35. Section VII Course Objectives: 1. To describe the benefits of the Up-C partnership structure. 2. To describe the benefits and rules for using ABLE ( Achieving a Better Life Experience ) programs, tax-advantaged accounts for eligible disabled taxpayers. 3. To describe the Circuit Court's holding in Voss. Section VII Review Questions: 1. The Up-C partnership structure may allow existing partners to: a. Defer recognizing taxable gains. b. Increase their total consideration received on future disposition of partnership units. c. Both a and b. d. Neither a nor b. 2. To be eligible for an ABLE ( Achieving a Better Life Experience ) account, an individual must be deemed disabled before age 26 based on: a. Blindness or disability under Title II or XVI of the Social Security Act. b. A disability certification with the IRS for the year (Sec. 529A(e)(1). c. Both a and b. d. Either a nor b. 3. ABLE programs are available in: a. Every state. b. Only in states where ABLE legislation has been enacted. 4. In the case of, Congress included a specific provision allocating the maximum debt limitation. a. The first-time homebuyer credit b. The home mortgage deduction c. Both a and b d. Neither a nor b 5. True/False? A taxpayer's basis in a sold or disposed charitable remainder trust is based on an allocation of the trust's adjusted uniform basis. a. True. b. False. Section VII Solutions and Suggested Responses to Review Questions appear on next page.

15 Section VII Solutions and Suggested Responses to Review Questions. Review Question 1: (Please see page 72.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Correct. Up-C partnerships may allow existing partners to defer recognizing gains as well as to increase their total consideration received on future disposition of their partnership units. d. Incorrect. Up-C partnerships may be a highly advantageous route to an IPO in the right situation. Review Question 2: (Please page 74.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. Eligibility does not require both a and b, but instead only one of the two. d. Correct. Eligibility requires satisfying one of the conditions but not both. Review Question 3: (Please see page 74.) a. Incorrect. The ABLE program is not a federal program that is available in every state. So far (as of mid-september 2015), 31 states have enacted ABLE legislation. b. Correct. Each state is free to pass its own legislation enabling ABLE accounts in that respective state but every state must follow federal guidelines. Review Question 4: (Please see page 77.) a. Correct. In the case of the first-time homebuyer credit, Congress included specific provisions limiting the amount of debt. b. Incorrect. In the case of the home mortgage deduction, Congress was silent as to the debt limitation, thus creating an opening for the taxpayer's attorneys. c. Incorrect. Legislation for the first-time homebuyer credit included such provisions. d. Incorrect. Legislation for the home mortgage deduction did not include any such provision. Review Question 5: (Please see page 81.) a. Correct. In T.D. 9729, the IRS issued final regulations that provided rules for determining a taxable beneficiary's basis in a term interest in a charitable remainder trust when there is a sale or other disposition of all interest in the trust to the extent that basis consists of a share of adjusted uniform basis. b. Incorrect. Tin the final regulations, the IRS states that basis in a sold or disposed CRT term interest is based on an allocation of the trust's adjusted uniform basis. ====================================== End of Section VII. REFERRAL INCENTIVE PROGRAM - WE LL PAY YOU FOR REFERRING NEW QUALIFYING CUSTOMERS: Receive $10 for each new customer you refer to us. For every new qualifying customer who pays for an exam and mentions your name, we ll send you a check for $10. It s as simple as that. We welcome any questions by either phone or .

16 Section VIII. A Step Up in Standards for Peer Reviewers (Page 54 of December JoA) Section VIII Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 36 through 40. Section VIII Course Objectives: 1. To describe the updated requirements for peer reviewers. 2. To describe some key differences between system reviews and engagement reviews. 3. To describe some specific differences between the new and old peer reviewer standards. Section VIII Review Questions: 1. The new qualification requirements apply: a. Only to CPAs conducting engagement reviews. b. Only to CPAs conducting system reviews. c. To all CPAs conducting even one peer review of any type. 2. Current high-quality training in the must-select industry is required under the peer review standards. a. Old b. New c. Both a and b d. Neither a nor b 3. The peer review standards require that the reviewer currently be serving as a reviewer, preparer or supervisor in the must-select industry. a. Old b. New c. Both a and b d. Neither a nor b 4. Under the peer review standards, in situations in which an AICPA Audit Quality Center (AQC) exists, reviewers of must-select engagements must be associated with firms that are members of the relevant AQC. a. Old b. New c. Both a and b d. Neither a nor b 5. Under the new peer reviewer standards, remediation can take no more than days. a. 150 b. 120 c. 90 d. 60 e. 30 Section VIII Solutions and Suggested Responses to Review Questions appear on the next page.

17 Section VIII Solutions and Suggested Responses to Review Questions. Review Question 1: (Please see page 56.) a. Incorrect. The new requirements do apply to CPAs conducting engagement reviews but this is not the most complete answer. b. Incorrect. The new requirements do apply to CPAs conducting system reviews but this is not the most complete answer. c. Correct. The new requirements apply to CPAs conducting either system reviews or engagement reviews. Review Question 2: (Please see page 56.) a. Incorrect. Current high-quality training in the must-select industry was not required under the old standard. b. Correct. Current high-quality training in the must-select industry is required under the new standard. c. Incorrect. Current high-quality training in the must-select industry is required under the new standard but was not required under the old standard. d. Incorrect. Current high-quality training in the must-select industry was not required under the old standard but is required under the new standard. Review Question 3: (Please see page 55.) a. Incorrect. The old standards did not require that the reviewer currently be serving as reviewer, preparer or supervisor in the must-select industry. b. Correct. The new standards require that the reviewer currently be serving as reviewer, preparer or supervisor in the must-select industry. c. Incorrect. The old standards did not require that the reviewer currently be serving as reviewer, preparer or supervisor in the must-select industry but the new standards imposed that requirement. d. Incorrect. The old standards did not require that the reviewer currently be serving as reviewer, preparer or supervisor in the must-select industry but the new standards imposed that requirement. Review Question 4: (Please see page 55.) a. Incorrect. The old standards did not require that, where AICPA Audit Quality Centers (AQCs) exist, reviewers be associated with firms that are members of the relevant AQC. b. Correct. The new standards require that, where AICPA Audit Quality Centers (AQCs) exist, reviewers be associated with firms that are members of the relevant AQC. c. Incorrect. The new standards require that, where AICPA Audit Quality Centers (AQCs) exist, reviewers be associated with firms that are members of the relevant AQC, but the old standards had no such requirement. d. Incorrect. The old standards did not require that, where AICPA Audit Quality Centers (AQCs) exist, reviewers be associated with firms that are members of the relevant AQC, but the new standards have imposed that requirement. Review Question 5: (Please see page 55.) a. Incorrect. One of the objectives of the new peer reviewer standards is to accelerate the review process, and imposes a maximum time that, if two significant reviewer performance deficiencies occur, the report acceptance body (RAB) should remediate or remove the period within far less than 150 days. b. Incorrect. One of the objectives of the new peer reviewer standards is to accelerate the review process, and imposes a maximum time that, if two significant reviewer performance deficiencies occur, the report acceptance body (RAB) should remediate or remove the period within far less than 120 days. c. Incorrect. One of the objectives of the new peer reviewer standards is to accelerate the review process, and imposes a maximum time that, if two significant reviewer performance deficiencies occur, the report acceptance body (RAB) should remediate or remove the period within far less than 90 days. d. Incorrect. One of the objectives of the new peer reviewer standards is to accelerate the review process, and imposes a maximum time that, if two significant reviewer performance deficiencies occur, the report acceptance body (RAB) should remediate or remove the period within far less than 60 days. e. Correct. One of the objectives of the new peer reviewer standards is to accelerate the review process, and imposes a maximum time that, if two significant reviewer performance deficiencies occur, the report acceptance body (RAB) should remediate or remove the period within 30 days. ====================================== End of Section VIII.

18 Section IX. Don't Let Foreign Currency Fluctuations Impair Performance Measurements (P. 60) Section IX Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 41 through 45. Section IX Course Objectives: 1. To describe how income statement accounts are developed for U.S. companies with international operations. 2. To describe limitations of U.S. GAAP in measuring performance of an enterprise with international operations. 3. To describe the benefits of using a constant-dollar income statement for performance measurement and analysis. Section IX Review Questions: 1. Unlike the example in the JoA article, a falling U.S. dollar would result in increased for U.S. companies with international operations. a. Sales b. Profits c. Both sales and profits d. Neither sales nor profits 2. ASC Topic 830, Foreign Currency Matters, addresses how U.S. companies with international operations should: a. Report results of operations to stakeholders outside of the company. b. Report results of operations for use inside the organization for internal performance assessment. 3. In most U.S. companies with international operations, it is reasonable to hold management accountable for: a. Sales. b. Profits. c. Currency fluctuations. d. All of the above. e. A and b but not c. 4. A constant-dollar income statement: a. Reflects U.S. GAAP standards. b. Reports operating performance measured in the parent entity's reporting currency. c. Both a and b. d. Neither a nor b. 5. The purpose of this question is to point out how important non-u. S. sales are to large U.S. corporations. On your own, please Google what percentage of the S&P 500 companies' sales come from outside the U.S. (according to Goldman Sachs) of S&P companies' sales are from outside the U.S. a. 10% b. 20% c. 25% d. 33% e. 50% REFERRAL INCENTIVE PROGRAM - WE LL PAY YOU FOR REFERRING NEW QUALIFYING CUSTOMERS: Receive $10 for each new customer you refer to us. For every new qualifying customer who pays for an exam and mentions your name, we ll send you a check for $10. It s as simple as that. We welcome any questions by either phone or . Section IX Solutions and Suggested Responses to Review Questions appear on the next page.

19 Section IX Solutions and Suggested Responses to Review Questions: Review Question 1: (Please see page 61.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Correct. Unlike the example in the JoA article, a weaker dollar would make U.S.-produced goods more attractive in the world marketplace and would have the effect of increasing sales and profits of U.S. companies with international operations. d. Incorrect. The JoA article highlighted how a strong dollar (as we've been seeing in the last two years) has resulted in lower sales and profits for U.S. companies selling abroad. Review Question 2: (Please see page 61.) a. Correct. ASC Topic 830, Foreign Currency Matters, reflects GAAP for financial statements directed to external users. b. Incorrect. ASC Topic 830, Foreign Currency Matters, reflects GAAP for financial statements directed to external users; however, for analysis of company operations, there are benefits to adjusting the GAAP statements to remove uncontrollable factors such as the effects of foreign currency fluctuations. Review Question 3: (Please see pages ) a. Incorrect. This is part of the answer but is not the most complete answer. b. Incorrect. This is part of the answer but is not the most complete answer. c. Incorrect. In most instances, management cannot be held responsible for foreign currency fluctuations because they can't control it. d. Incorrect. Management is responsible for sales and profits but not foreign currency fluctuations. e. Correct. Management should be held responsible for things they can control (e.g., sales and profits) but not for things they can't control (e.g., foreign currency fluctuations). Review Question 4: (Please see page 65.) a. Incorrect. A constant-dollar income statement does not reflect U.S. GAAP because it does not reflect the effects of foreign currency fluctuations. b. Correct. By removing the effects of foreign currency fluctuations, the constant-dollar income statement reports operating performance in the parent entity's reporting currency. c. Incorrect. Constant-dollar income statements measure operating performance in the parent entity's reporting currency but do not reflect U.S. GAAP. d. Incorrect. Constant-dollar income statements measure operating performance in the parent entity's reporting currency but do not reflect U.S. GAAP. Review Question 5: (Please see page 63.) a. Incorrect. The share of the S&P 500 companies' sales that come from outside the U.S. is greater. b. Incorrect. The share of the S&P 500 companies' sales that come from outside the U.S. is greater. c. Incorrect. The share of the S&P 500 companies' sales that come from outside the U.S. is greater. d. Correct. The share of the S&P 500 companies' sales that come from outside the U.S. is 33%, according to Goldman Sachs. e. Incorrect. The share of the S&P 500 companies' sales that come from outside the U.S. is less than 50%. End of section IX

20 Section X. Tax Columns: From The Tax Adviser: Employer Health Care Information Reporting Requirements (P. 68), Tax Matters (Page 72), and Business Tax Quick Guide Tax year 2015 (Insert following P. 72) Section X Assignment: 1. Study the articles (reference text) in the Journal of Accountancy, paying particular attention to our course objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 46 through 50. Section X Course Objectives: 1. To describe (briefly) the employer health care information-reporting requirements. 2. To describe (briefly) certain income tax rates, thresholds and deductions for businesses for the 2015 tax year. Section X Review Questions: 1. The deadline for electronically filing Forms 1094-C and 1095-C is: a. February 29, b. March 31, c. April 1, d. April 15, The employer's transmittal form is: a. Form 1094-C. b. Form 1095-C. 3. For the 2015 tax year, what are the respective income thresholds for imposition of the 0.9% Medicare surtax for single taxpayers and for married taxpayers filing jointly. a. $125,000...$200,000 b. $150,000...$250,000 c. $200,000...$250,000 d. $200,000...$400,000 e. $250,000...$500, For the 2015 tax year, taxable income of a qualified personal service corporation is taxed at a flat rate of: a. 20%. b. 25%. c. 30%. d. 35%. e. 40%. 5. For the 2015 tax year, corporations can deduct of dividends received from domestic corporations. a. 40% b. 50% c. 60% d. 70% e. 80% Section X Solutions and Suggested Responses to Review Questions appear on the next page.