QUARTERLY CPE EXAM ON THE

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1 Name Firm Address City/State/Zip Telephone (Day) Address Accounting Education Associates ( Mailing Address: P.O. Box 9055, Greensboro, NC Address: 2820 Lawndale Dr., Ste. 206, Greensboro, NC Toll-Free Order Line: CPE-Exam ( ) Fax Line: QUARTERLY CPE EXAM ON THE Journal of Accountancy- Web edition Fourth Quarter (October - December), 2006; Course #0604 Recommended CPE Credit - 7 hours (Exceptions noted on next page) To which state board(s), agencies, or associations do you report CPE? INSTRUCTIONS: 1. Answer the 50 multiple-choice questions by selecting the one best answer. Blacken the letter; do not circle. A score of 75 or better is required. 2. Mail or fax only the answer sheet for grading. 3. Please include payment by check, Visa, or Mastercard. You may provide your credit card # and expiration date below.* 4. Please provide your fax number above. We plan to fax your graded exam back to you instead of mailing, unless you object, resulting in faster response to you. Thanks! COURSE EVALUATION: On a scale of A (highest) to F (lowest), please evaluate the following: 1. How well did the course meet its stated learning objectives? 2. How well did the program materials help in achieving the learning objectives? 3. How did you like using our Web site? 4. How timely was the course content? 5. How relevant was the course content? Finally, what was your estimated completion time? 50-minute hours. For CPE credit, this exam must be completed by December 31, * If paying by credit card, you may report your credit card # here or in a cover letter. Be sure to give us the 16-digit #, the expiration date, and the card s billing address, below: Fax Please leave this space for our Certificate of Completion 1. =a= =b= =c= =d= =e= 2. =a= =b= =c= =d= =e= 3. =a= =b= =c= =d= =e= 4. =a= =b= =c= =d= =e= 5. =a= =b= =c= =d= =e= 6. =a= =b= =c= =d= =e= 7. =a= =b= =c= =d= =e= 8. =a= =b= =c= =d= =e= 9. =a= =b= =c= =d= =e= 10. =a= =b= =c= =d= =e= 11. =a= =b= =c= =d= =e= 12. =a= =b= =c= =d= =e= 13. =a= =b= =c= =d= =e= 14. =a= =b= =c= =d= =e= 15. =a= =b= =c= =d= =e= 16. =a= =b= =c= =d= =e= 17. =a= =b= =c= =d= =e= 18. =a= =b= =c= =d= =e= 19. =a= =b= =c= =d= =e= 20. =a= =b= =c= =d= =e= 21. =a= =b= =c= =d= =e= 22. =a= =b= =c= =d= =e= 23. =a= =b= =c= =d= =e= 24. =a= =b= =c= =d= =e= 25. =a= =b= =c= =d= =e= 26. =a= =b= =c= =d= =e= 27. =a= =b= =c= =d= =e= 28. =a= =b= =c= =d= =e= 29. =a= =b= =c= =d= =e= 30. =a= =b= =c= =d= =e= 31. =a= =b= =c= =d= =e= 32. =a= =b= =c= =d= =e= 33. =a= =b= =c= =d= =e= 34. =a= =b= =c= =d= =e= 35. =a= =b= =c= =d= =e= 36. =a= =b= =c= =d= =e= 37. =a= =b= =c= =d= =e= 38. =a= =b= =c= =d= =e= 39. =a= =b= =c= =d= =e= 40. =a= =b= =c= =d= =e= 41. =a= =b= =c= =d= =e= 42. =a= =b= =c= =d= =e= 43. =a= =b= =c= =d= =e= 44. =a= =b= =c= =d= =e= 45. =a= =b= =c= =d= =e= 46. =a= =b= =c= =d= =e= 47. =a= =b= =c= =d= =e= 48. =a= =b= =c= =d= =e= 49. =a= =b= =c= =d= =e= 50. =a= =b= =c= =d= =e= Date Completed: Copyright AEA (

2 Our Quarterly CPE Exams on the Journal of Accountancy can help you in your continuing education. This is a series of quarterly formal self-study programs that can be completed in your home or office without the inconvenience and high costs associated with many CPE courses. ESTIMATED COMPLETION TIME: The estimated average completion time to read three monthly journal issues and to complete our Quarterly CPE Exam on the Journal of Accountancy is 14 hours. These estimates are based on pre-tests and 50-minute hours. OBJECTIVE: The objective is to enable participants to enhance their technical proficiency by gaining a better understanding of current developments in accounting. Completing the exam helps reinforce the concepts presented in leading professional accounting journals. The constant stream of new releases of accounting, auditing, and tax information has intensified the accountant s need to stay abreast of changes in the accounting profession. Our programs help the accountant remain current. COURSE SPONSOR: Accounting Education Associates has offered Quarterly CPE Exams on the Journal of Accountancy since The courses are prepared by James H. Ogburn. In addition to working in public accounting and finance, his experience includes 15 years teaching accounting at the University of North Carolina at Greensboro, as well as serving as Assistant Director of Graduate Programs in Accounting and Business, and 25 years of experience in developing CPE courses for CPAs. RECOMMENDED CPE CREDIT: We recommend CPE credit of seven (7) hours, one-half of the estimated completion time of 14 hours. Exceptions: Certain state boards (e.g., Arizona, Georgia, Kentucky, and Ohio) grant CPE credit of 100% of estimated completion time for formal self-study courses (i.e., 14 hours for each Exam on the Journal of Accountancy). Please check with your state board for further guidance. PROGRAM SPONSOR AGREEMENTS: AEA has sponsor agreements with the following state boards: AL, DC, DE, HI (#4007), IL (# ), IN (#CE ), KY, NJ (#102), OH (#CPE.20), PA (#PX00005-L), and TX (#000211). AEA s courses are accepted by the IBCFP and many but not all state boards of accountancy. We do not have a sponsor agreement with the IRS, NASBA or QAS. SUBJECT DIVISIONS OF CPE CREDIT: The following subject division for each Quarterly CPE Exam on the Journal of Accountancy is suggested for states requiring CPE credit in specific areas: Accounting & Auditing: 4 hours; Tax: 2 hours; Other: 1 hour. HOW TO CONTACT AEA: Telephone: CPE-EXAM ( ) Fax: FedEx, UPS: 2820 Lawndale Drive, Suite 206 Greensboro, NC Postal: P.O. Box 9055 Greensboro, NC info@accounting-education.com Please provide your fax number on your answer sheet page. We plan to fax your graded exam back to you (instead of mailing) unless you object, resulting in faster response to you. *Please notify AEA of changes to your mailing address.* COURSE NUMBER: #0603 (For those states requiring a course number, we assign a number derived from the year and quarter.) PRICES: The price of a Quarterly CPE Exam is $35, with lower prices when an order involves four or more courses: Price per course for orders of 1 to 3 courses: $35 Price per course for orders of 4 to 7 courses: $32 Price per course for orders of 8 to 23 courses: $30 Price per course for orders of 24 to 49 courses: $28 Price per course for orders of 50 or more: $25 Checks, Visa, and MasterCard are accepted as payment. SUBSCRIBE TO OUR QUARTERLY CPE EXAMS: To ensure uninterrupted service and to remind yourself to conveniently earn your CPE credit throughout the year, subscribe today! Annual subscriptions are $128 (or $120 when you order at least two subscriptions). Just tell us your start quarter. We ll send you tracking numbers for you to write on exams that you print at our website.

3 Quarterly CPE Exam on the Journal of Accountancy Fourth Quarter 2006 OBJECTIVES: > To identify significant accounting changes that have been issued recently or are being considered by the FASB and are being considered by other sources. > To assess the impact of potential accounting changes on financial statements. > To identify significant tax developments. > To identify recent developments in management cost accounting and systems. > To identify other significant developments affecting the accounting profession. DESCRIPTION: This course is designed to cover recent and potential changes in accounting principles and practices and their effects on financial statements. This course is classified at the Update level. REQUISITE KNOWLEDGE AND EXPERIENCE: This course is designed for participants who are well-versed in the general application of accounting pronouncements. They should have a genuine interest in how current thinking might effect change and should be knowledgeable of generally accepted accounting principles and tax regulations. MAJOR TOPICAL COVERAGE: This Quarterly CPE Exam examines: > Significant recently issued accounting pronouncements. > Significant alternative accounting principles and theories being considered or developed. > The potential effects of any changes on financial statements and disclosures. > The effects of recent tax developments. > Latest information involving management cost systems. The major topical coverage of this course will correspond to the content of the issues of the Journal of Accountancy for the months covered by this Exam. (Please be sure to supply your fax number on your answer sheet so we can fax back your graded exam.) QUESTIONS 1-18 RELATE TO THE Journal of Accountancy OF OCTOBER 2006 NEWS DIGEST (P. 19) 1. Which of the following qualities did prospective employers consider most important? a. Leadership skills. d. Communication skills. b. Motivation and initiative. e. Computer skills. c. Analytical skills. CHECKLIST: SWEET CHARITY (P. 28) 2. Federal tax law generally allows a deduction for charitable gifts of up to 50% of adjusted gross income for: a. Unreimbursed incidental expenses. b. Cash contributions. c. Donations of personal property. d. A, b, and c.

4 3. Gifts to are generally allowable as charitable deductions. a. The SPCA d. A, b, and c b. Colleges and universities e. A and b but not c c. The Social Security System TAX SOFTWARE 2007 (P. 34) 4. Which tax software scored highest for overall satisfaction? a. Lacerte. d. UltraTax CS. b. TaxACT Preparer s Edition. e. Drake Software. c. ProSeries Professional. 5. Which tax software scored highest for ease of installation? a. Lacerte. d. UltraTax CS. b. TaxACT Preparer s Edition. e. Drake Software. c. ProSeries Professional. 6. Which tax software scored highest for ease of use? a. Lacerte. d. UltraTax CS. b. TaxACT Preparer s Edition. e. Drake Software. c. ProSeries Professional. THE ABCs OF QPRTs (P. 53) 7. What is the maximum number of residences for which a grantor may establish a qualified personal residence trust (QPRT)? a. No limit. b. Four. c. Three. d. Two. e. One. 8. True/False? If the grantor of a QPRT were to die before the trust term expired, the grantor would be no worse off than if he or she had never created the QPRT. 9. True/False? None of the gain recognized on the sale of a principal residence that had been transferred to a QPRT may qualify for the $250,000/$500,000 gain exclusion from the sale of a principal residence under terms of IRC section True/False? The QPRT can include a provision that allows the residence to revert back to the grantor s estate if he or she does not survive the QPRT term. 11. QPRT documents can now provide that the grantor, his or her spouse or any entity controlled by either can buy the property back from the QPRT. MATCHING DEDUCTIONS TO PAYMENTS (P. 59) 12. IRC section 83(h) covers: a. Any transaction in which an employee receives property for services. b. Any transaction in which a nonemployee receives property for services. c. Only transactions involving restricted stock compensation plans. d. A and b but not c. e. None of the above. 13. Under the so-called Sutherland Lumber-Southwest rule, an employer s deduction for providing a benefit to employees is limited: a. By the compensation reported. b. To the entire cost of providing the benefit. 14. Can a taxpayer who uses the accrual method deduct a note issued to a related cash-basis taxpayer? a. Yes. b. No.

5 15. Section 267(b) defines related taxpayer to include corporate-controlled groups with a stock ownership requirement. a. 50% b. 60% c. 70% d. 80% e. 100% TAKING FLIGHT (P. 67) 16. Which of the following methods may be used to calculate the disallowed expenses? a. The occupied-seat-miles method. b. The occupied-seat-hours method. c. Either a or b. d. Neither a nor b. TAX MATTERS (P. 86) 17. A deficiency notice is required for form(s): a c. Both a and b. b d. Neither a nor b. 18. True/False? In Mark W. and Michele Senda v. Commissioner, the appeals court ruled that the family limited partnership demonstrated a legitimate business purpose. QUESTIONS RELATE TO THE Journal of Accountancy OF NOVEMBER 2006 NEWS DIGEST (P. 21) 19. According to SEC staff, companies should adjust their financial statements when the amount by which the current-year is/are misstated by amounts that are material when all relevant quantitative and qualitative factors are considered. a. Income statement c. Either a or b b. Balance sheet d. Both a and b SMART STOPS ON THE WEB (P. 31) 20. At which of the following Web sites can registered users post articles and research accounting topics such as attestation, taxation and technology? a. d. b. e. c Which of the following Web sites offers free information on screening job candidates and following compliance rules for background credit and criminal records checks? a. d. b. e. c. CHECKLIST: MAGNETIZE YOUR MARKETING MATERIALS (P. 32) 22. True/False? Kurland recommends writing marketing materials in the third person. PROFESSIONAL ISSUES: TAKIN CARE OF BUSINESS (P. 34) 23. Who currently bears the cost of GAAP compliance without reaping commensurate benefits? a. Publicly-owned businesses. b. Privately-owned businesses. c. Both a and b. d. Neither a nor b. UNDERSTANDING THE BEST AND BRIGHTEST (P. 41) Note: The following three questions relate to the 2006 PCPS Top Talent Study which included responses from 646 staff members and 645 firm partners. 24. According to the study, salary was listed most often by as the top reason to join a CPA firm. a. Top talent c. Both a and b b. Partners d. Neither a nor b

6 25. Salary was listed most often by as the top reason to stay with a CPA firm. a. Top talent c. Both a and b b. Partners d. Neither a nor b 26. True/False? Over three-quarters of the young CPAs surveyed indicated an interest in being groomed for a senior position. BE AN HR RESOUCE FOR YOUR CLIENTS (P. 49) 27. Retirement plan third-party administrators are generally compensated based on: a. Hourly billings. b. Fixed fees. 28. True/False? CPA firms may provide HR consulting to audit clients. 29. True/False? CPAs are subject to the AICPA Professional Standards, Code of Professional Conduct, whenever they provide HR consulting services. HIRED HELP: FINDING THE RIGHT CONSULTANT (P. 57) 30. According to H. Robert Sanders, is inefficient. a. Paying a benefits consultant per project b. Putting a benefits consultant on retainer SO YOU WANT TO BE AN ARBITRATOR (P. 63) 31. Most arbitration engagements involve: a. The discovery process. b. Transcription of the proceedings by a court reporter. c. Testimony under oath. d. All of the above. e. None of the above. 32. The arbitrator should: a. Obtain a signed engagement letter before beginning the engagement. b. Hammer out a scheduling agreement. c. Obtain immunity from personal liability. d. A, b, and c. LINKS IN A BLINK (P. 68) 33. Use of the dollar sign in linked cell notation results in cell references. a. Absolute b. Relative NEW RULES, NEW RULING (P. 73) 34. Which of the following is/are excluded from income under section 104 (a) (2)? a. Proceeds from personal injury claims. b. Proceeds from sickness-only claims. c. Proceeds from punitive damage awards. d. A, b, and c. TAX MATTERS (P. 77) 35. In the Ruckriegel case, the Tax Court ruled that the taxpayers could deduct the payments. a. Direct c. Both a and b b. Indirect d. Neither a nor b FROM The Tax Adviser (P. 80) 36. Beginning in 2007, cash gifts of must be substantiated by a bank record or a written communication stating the charity s name and the amount and date of the contribution. a. $250 or more c. Both a and b b. Less than $250 d. Neither a nor b

7 QUESTIONS RELATE TO THE Journal of Accountancy OF DECEMBER 2006 NEWS DIGEST (P. 17) 37. FASB Statement no. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, requires business entities to recognize: a. An asset for a plan s overfunded status. b. A liability for a plan s underfunded status. c. Changes in the funded status of a plan. d. A, b and c. 38. True/False? GASB Statement no. 48, Sales and Pledges of Receivables and Future Revenues and Intra- Entity Transfers of Assets and Future Revenues, requires governments to revalue assets when they are transferred between components of a financial reporting entity. LIABILITY FOR SOMEONE ELSE S SINS: THE RISKS OF ACCOUNTING FIRM ALLIANCES (P. 30) 39. Which of the following legal doctrines contributed to the court s decision in Parmalat? a. Agency. d. A, b and c. b. Joint venture. c. Alter ego. THE ECONOMICS OF ERGONOMICS (P. 34) 40. Which of the following does Wendy Young not recommend to improve the ergonomics of a workspace? a. Squeeze balls. d. Footrests. b. Keyboard trays. e. Ergo stretch software. c. Overstuffed chairs with soft pillows. HOME OFFICE DEDUCTIONS (P. 42) 41. In Cadwallader, the Tax Court ruled that the home office in question was maintained for the convenience of: a. The employee. b. The employer. 42. A taxpayer uses a room 60% of the time for business and 40% for personal use. What percentage of the room s cost may the taxpayer take as a home office deduction? a. 100%. b. 80%. c. 60%. d. 40%. e. 0%. 43. True/False? A home office deduction may be available for the fraction of a room used exclusively for business. 44. True/False? A taxpayer whose home office is the principal location of a business activity may deduct the cost of business travel from the home office to another location. THE RISKS OF BEING GLOBAL (P. 53) 45. True/False? Companies can avoid export regulations by shipping items through a third country. ETHICS RULES GET TIGHTER (P. 59) 46. Which of the following professional services apply retroactively to new attestation engagements? a. Nonaudit services. b. Audit services. c. Both a and b. d. Neither a nor b. 47. CPA firms may have contingent fee arrangements with audit clients. a. Direct b. Indirect c. Either a or b d. Neither a nor b

8 THE FUTURE OF CORPORATE SUSTAINABILITY REPORTING (P. 65) 48. Which of the following statements is not true of corporate sustainability reporting (CSR)? a. CSR includes financial information. b. CSR includes nonfinancial information. c. CSR is directed to stakeholders on the company s operational, social and environmental activities and its ability to deal with related risks. d. CSR is currently required for publicly-owned U.S. corporations. e. The most dominant reporting regulations are those of the Global Reporting Initiative. TAX MATTERS (P. 80) 49. In which of the following cases were payments to employees who elected to terminate their employment ultimately ruled to be subject to FICA tax? a. Donald F. Appoloni, Sr. v. United States. b. CSX Corporation v. United States. c. North Dakota State University v. United States. d. A, b and c. FROM The Tax Adviser (P. 84) 50. Foreign earned income includes all of the following except: a. Wages. b. Interest and/or payments that represent distributions of earnings and profits. c. Professional fees. d. Salaries. e. The fair market value of noncash compensation. Payment for this Exam may be made by check, Visa or MasterCard. Please mail or fax your completed exam in for grading. Fax: You may print the Payment Advice at our Web site: Please provide your fax number on your answer sheet page. We plan to fax your graded exam back to you (instead of mailing) unless you object, resulting in faster response to you. Thank you. Please complete the course evaluation on the first page. Your comments and referrals are appreciated. Subscribe to our Quarterly CPE Exams and save time and money. Subscribers receive uninterrupted service and gentle reminders when it s time to renew. Annual subscriptions are just $128 per journal or $120 when you order multi-annual subscriptions. Just enclose an order form or a note, or call our toll-free telephone line at CPE-EXAM ( ). Please tell us the start quarter. Thank you for using our Quarterly CPE Exams!