REG Questions
Which of the following statements is correct under the Reorganization Chapter of the Bankruptcy Code if the debtor remains in possession of its business? The debtor has the right to be compensated in the same manner as a trustee. II.The debtor has the right to continue managing and operating the business.
II Only This answer is correct because under the Reorganization Chapter of the Bankruptcy Code, the debtor is given the opportunity to reorganize the business and keep it going. In order to make this effort, the debtor needs to be in control of the assets.
Claudio Corporation and Stellar Corporation both report on a calendar-year basis. Claudio merged into Stellar on June 30, 2019. Claudio had an allowable net operating loss carryover of $270,000. Stellar's taxable income for the year ended December 31, 2019, was $360,000 before consideration of Claudio's net operating loss carryover. Claudio's fair market value before the merger was $1,500,000. The federal long-term tax-exempt rate is 3%. As a result of the merger, Claudio's former shareholders own 10% of Stellar's outstanding stock. How much of Claudio's net operating loss carryover can be used to offset Stellar's 2019 taxable income? $ 22,685 $ 45,000 $180,000 $180,984
$ 22,685 The amount of Claudio's NOL ($270,000) that can be utilized by Stellar for 2019 is limited by Sec. 381 to the taxable income of Stellar for its full taxable year (before a NOL deduction) multiplied by the fraction Days after acquisition date/Total days in the tax table year This limitation is 184/365 days × $360,000 = $181,479. Additionally, since there was a more than 50 percentage point change in the ownership of Claudio, Sec. 382 limits the amount of Claudio's NOL carryover that can be utilized by Stellar to the fair market value of Claudio multiplied by the federal long-term tax-exempt rate. $1,500,000 × 3% = $45,000. However, for purposes of applying this limitation for the year of acquisition, the limitation amount is only available to the extent allocable to the days in Stellar's taxable year after the acquisition date. $45,000 × 184/365 days = $22,685 The remainder of Claudio's NOL ($270,000 − $22,685 = $247,315) can be carried forward and used to offset Stellar's taxable income (subject to the Sec. 382 limitation) in carry forward years.
Ronald Birch, who is single and age 28, earned a salary of $70,000 in 2022 as a plumber employed by Lupo Company. Birch was covered for the entire year 2022 under Lupo's qualified pension plan for employees. In addition, Birch had a net income of $15,000 from self-employment in 2022. What is the maximum amount that Birch can deduct in 2022 for contributions to an individual retirement account (IRA)? $5,000 $4,000 $3,000 $0
$0 A single individual with AGI over $78,000 for 2022 would only be entitled to an IRA deduction if the taxpayer is not covered by a qualified employee pension plan.
Which of the following is not a power of the board of directors? May select the officers of the corporation. May declare the dividends to be paid to the shareholders. May amend the Articles of Incorporation. All of the listed choices are powers of the board of directors.
May amend the Articles of Incorporation. The Articles of Incorporation may be amended by the shareholders' vote, not by the board of directors.
The corporate dividends-received deduction Must exceed the applicable percentage of the recipient shareholder's taxable income. May be allowed for dividends from foreign corporations in certain circumstances. Is unaffected by the percentage of the investee's stock owned by the investor corporation. May be claimed by S corporations.
May be allowed for dividends from foreign corporations in certain circumstances. Correct! Beginning in 2018, a DRD is allowed for foreign-source dividends received from a foreign corporation if the U.S. corporate shareholder owns at least 10% of the voting power or value of the stock.
Which of the following is not a corporate reorganization as defined in the Internal Revenue Code? Stock redemption Recapitalization Mere change in identity Statutory merger
Stock redemption This answer is correct. The requirement is to determine which is not a corporate reorganization. A corporate reorganization is specifically defined in Sec 368 of the Internal Revenue Code. Sec 368 defines seven types of reorganization, of which three are present in this item: Type A, a statutory merger; Type E, a recapitalization; and, Type F, a mere change in identity, form, or place of organization. Stock redemption is the correct answer because it, by itself, does not constitute a corporate reorganization.
Which of the following is correct pertaining to the rights of stockholders in a corporation? Stockholders have no right to manage their corporation unless they are also directors or officers. Stockholders have a right to receive dividends. Stockholders have no right to inspect the books and records of their corporation. Stockholders have a right to get a list of their corporation's customers to use for the stockholder's personal business mailing list.
Stockholders have no right to manage their corporation unless they are also directors or officers. Stockholders do not have the right to manage their corporation. However, stockholders who are also directors or officers do have the right to manage as part of their rights as directors and officers.
If an exempt organization is a charitable trust, then unrelated business income is Not subject to tax. Taxed at rates applicable to corporations. Subject to tax even if such income is less than $1,000. Subject to tax only for the amount of such income in excess of $1,000.
Subject to tax only for the amount of such income in excess of $1,000. If an exempt organization is a charitable trust, then unrelated business income is subject to tax only for the amount of such income in excess of $1,000.
In 2017, Celia Mueller bought a $1,000 bond issued by Disco Corporation for $1,100. Instead of paying off the bondholders in cash, Disco issued 100 shares of preferred stock in 2019 for each bond outstanding. The preferred stock had a fair market value of $15 per share. What is the recognized gain to be reported by Mueller in 2019? $0 $400 dividend $400 long-term capital gain $500 long-term capital gain
$0 This answer is correct. The issuance by Disco Corporation of its preferred stock in exchange for its bonds is a nontaxable "Type E" reorganization (i.e., a recapitalization). Since Mueller did not receive any boot, no part of her $400 realized gain is recognized.
The following is Year 2 information pertaining to Sam and Ann Hoyt, who filed a joint federal income tax return for the calendar year Year 2. The Hoyts had adjusted gross income of $34,000 and itemized their deductions for Year 2. Among the Hoyts' cash expenditures during Year 2 were the following: $2,500 repairs in connection with Year 2 fire damage to the Hoyt residence. This property has a basis of $50,000. Fair market value was $60,000 before the fire and $55,000 after the fire. Insurance on the property had lapsed in Year 1 for nonpayment of premium. The area was declared a federal disaster area.$800 appraisal fee to determine amount of fire loss. What amount of fire loss were the Hoyts entitled to deduct as an itemized deduction on their Year 2 return? $5,000 $2,500 $1,600 $1,500
$1,500 The amount of a nonbusiness casualty loss is computed as the lesser of (1) the adjusted basis of the property, or (2) the property's decline in FMV; reduced by any insurance recovery, and a $100 floor. If an individual has a net casualty loss for the year, it is then deductible as an itemized deduction to the extent that it exceeds 10% of adjusted gross income.
David Price owned machinery which he had acquired in Year 3 at a cost of $100,000. During Year 4, the machinery was destroyed by fire. At that time it had an adjusted basis of $86,000. The insurance proceeds awarded to Price amounted to $125,000, and he immediately acquired a similar machine for $110,000. What should Price report as ordinary income resulting from the involuntary conversion for Year 4? $14,000 $15,000 $25,000 $39,000
$14,000 The realized gain resulting from the involuntary conversion ($125,000 insurance proceeds − $86,000 adjusted basis = $39,000) is recognized only to the extent that the insurance proceeds are not reinvested in similar property ($125,000 − $110,000 = $15,000). Since the machinery was Sec. 1245 property, the recognized gain of $15,000 is recaptured as ordinary income to the extent of the $14,000 of depreciation previously deducted. The remaining $1,000 is Sec. 1231 gain.
Lane, a single taxpayer, received $160,000 in salary, $15,000 in income from an S corporation in which Lane does not materially participate, and a $35,000 passive loss from a real estate rental activity in which Lane materially participated. Lane's modified adjusted gross income was $165,000. What amount of the real estate rental activity loss was deductible? $0 $15,000 $25,000 $35,000
$15,000 This answer is correct. A real estate rental activity is generally considered to be a passive activity, even though the taxpayer materially participates in the rental activity. That is important because losses from passive activities can only be used to offset income from other passive activities. Here, since Lane did not materially participate in the S corporation, the S corporation income of $15,000 is treated as passive activity income and is offset by $15,000 of the rental real estate passive loss. Although a special rule permits up to $25,000 of income that is not from passive activities to be offset by losses from a rental real estate activity, that special $25,000 allowance is reduced by 50% of a taxpayer's modified AGI in excess of $100,000 and is fully phased out when modified AGI exceeds $150,000. Since Lane's modified AGI is $165,000, the $25,000 allowance is not available. As a result, Lane's rental real estate loss is deductible in the current year only to the extent that it offsets the $15,000 of passive activity income.
Genetic Corp.'s operating income for the year ended December 31, Year 6, amounted to $100,000. Also in Year 6, a machine owned by Genetic was completely destroyed in an accident. This machine's adjusted basis immediately before the casualty was $20,000. The machine was not insured and had no salvage value. In Genetic's Year 6 tax return, what amount should be deducted for the casualty loss? $ 9,900 $10,000 $19,900 $20,000
$20,000 This answer is correct. The requirement is to determine the amount of casualty loss deduction available to Genetic Corp. due to the complete destruction of its machine. If business property is completely destroyed, the amount of casualty loss deduction is the property's adjusted basis immediately before the casualty, less any insurance reimbursement. Note that the "$100 floor" and "10% of adjusted gross income" limitations that apply to nonbusiness casualty losses of individuals do not apply to business casualty losses. Casualty losses for business property also do not have to be attributed to a federal disaster area.
Charles Wolfe purchased the following long-term investments at par during the current year: $20,000 general obligation bonds of Burlington County (wholly tax-exempt)$10,000 debentures of Arrow Corporation Wolfe financed these purchases by obtaining a $30,000 loan from the Union National Bank. For the current year, Wolfe made the following interest payments: Union National Bank $3,600 Interest on home mortgage 3,000 Interest on credit card charges (items purchased for personal use) 500 What amount can Wolfe utilize as interest expense in calculating itemized deductions for the current year?
$3,000 Since 2/3 of the loan proceeds were used to purchase tax-exempt bonds, 2/3 of the bank interest is nondeductible. The remaining 1/3 of the bank interest ($1,200) is related to the purchase of the Arrow debentures and is classified as investment interest deductible to the extent of net investment income ($0). The $3,000 of home mortgage interest is fully deductible as qualified residence interest. The interest on credit card charges is personal interest and is not deductible.
On June 30, Year 8, Ral Corporation had retained earnings of $100,000. On that date, it sold a plot of land to a noncorporate shareholder for $50,000. Ral had paid $40,000 for the land in Year 2, and it had a fair market value of $80,000 when the shareholder bought it. The amount of dividend income taxable to the shareholder in Year 8 is $0. $10,000. $20,000. $30,000.
$30,000. If a corporation sells property to a shareholder for less than fair market value, the shareholder generally is considered to have received a constructive dividend to the extent of the difference between the fair market value of the property and the price paid. Thus, the shareholder's dividend income is $80,000 − $50,000 = $30,000.
Dole, the sole owner of Enson Corp., transferred a building to Enson. The building had an adjusted tax basis of $35,000 and a fair market value of $100,000. In exchange for the building, Dole received $40,000 cash and Enson common stock with a fair market value of $60,000. What amount of gain did Dole recognize?
$40,000 This answer is correct. The requirement is to determine the amount of gain recognized by Dole on the transfer of a building with a basis of $35,000 to his solely owned corporation in exchange for $40,000 cash and stock with a value of $60,000. No gain or loss is recognized if property is transferred to a corporation solely in exchange for stock if the transferor is in control of the corporation immediately after the exchange. If consideration other than stock is received, a realized gain must be recognized to the extent of the boot received. Here, Dole realized a gain of ($40,000 + $60,000 stock) -$35,000 basis = $65,000 on the transfer of the building, and must recognize the gain to the extent of the $40,000 of cash received.
Edan Corp. made a pro rata distribution of marketable securities in redemption of its stock in a complete liquidation during the current year. These securities, which had been purchased five years ago for $80,000, had a fair market value of $40,000 when distributed. What loss does Edan Corp. recognize as a result of the distribution? $0 $40,000 long-term capital loss $40,000 Section 1231 loss $40,000 ordinary loss
$40,000 long-term capital loss This answer is correct. The requirement is to determine the amount of Edan Corp.'s recognized loss resulting from the distribution of marketable securities in complete liquidation. Generally, a corporation will recognize gain or loss on the distribution of its property in complete liquidation just as if the property were sold to the distributee for its fair market value. Since the marketable securities were a capital asset and held for more than one year, the distribution results in a long-term capital loss of $80,000 - $40,000 = $40,000.
On May 1, Frost entered into a signed contract for the sale of 5,000 pounds of sugar to Kemp Co. at $.30 per pound. Delivery was to be made on June 10. Due to a sudden rise in sugar prices, Frost sent Kemp a letter stating that it would not sell the sugar to Kemp. Kemp received the letter on May 15 at which time the market price of sugar was $.40 per pound. Although Kemp could have reasonably purchased sugar elsewhere in the market, it chose not to do so. On June 10, the market price of sugar was $.50 per pound. In addition to incidental damages, Kemp is entitled to damages of $500. $500 plus consequential damages. $1,000. $1,000 plus consequential damages.
$500. This answer is correct because Frost's letter to Kemp constituted anticipatory repudiation. Anticipatory repudiation discharges the nonrepudiating party (Kemp) from the contract and gives this party two options: (1) sue immediately for breach of contract or (2) for a commercially reasonable time, ignore the breaching party's repudiation and wait for the repudiating party to perform at the appointed time. If the repudiating party does not subsequently perform, the nonrepudiating party may then sue for breach. The market value to be used in computing the buyer's damages would be the market value at the time the buyer learned of the breach. Kemp learned of the breach on May 15 when the seller repudiated the contract. Consequently the market value used in computing Kemp's damages is $.40 per pound. Thus, Kemp's damages are $500 [5,000 pounds × ($0.40 − $.30)].
Soma Corp. had $600,000 in compensation expense for book purposes in Year 7. Included in this amount was a $50,000 accrual for Year 7 nonshareholder bonuses. Soma paid the actual Year 7 bonus of $60,000 on March 1, Year 8. In its Year 7 tax return, what amount should Soma deduct as compensation expense?
$610,000 This answer is correct. An accrual-method taxpayer can deduct compensation when there is an obligation to make payment, economic performance has occurred, the amount is reasonable, and payment is made no later than 2½ months after the end of the taxable year. Economic performance generally occurs when an employee performs services. It is not required that the exact amount of compensation be determined during the taxable year, as long as the computation is known and the liability is fixed, accrual is proper even though the profits upon which the compensation is based are not determined until after the close of the year. In this case, since Soma's $600,000 of compensation expense per books included bonuses of $50,000, while actual bonus payments totaled $60,000, its compensation expense on its Year 7 tax return would be $600,000 + $10,000 = $610,000.
Brown Corp., a calendar-year taxpayer, was organized and actively began operations on July 1, Year 8, and incurred the following costs: Legal fees to obtain corporate charter $40,000 Commission paid to underwriter 25,000 Temporary directors' meetings 15,000 State incorporation fees 4,400 For Year 8, what amount should Brown Corp. deduct for organizational expenses?
1,980 A corporation may deduct up to $5,000 of organizational expenditures for the tax year in which the corporation begins business. The $5,000 amount must be reduced by the amount by which organizational expenditures exceed $50,000. Remaining expenditures are deducted ratably over the 180-month period beginning with the month in which the corporation begins business. Brown's qualifying organizational expenditures include the $40,000 of legal fees, $15,000 for temporary directors' meetings, and $4,400 of state incorporation fees, a total of $59,400. The $25,000 of underwriting commissions and other costs of issuing stock are not deductible, and merely reduce paid-in capital. Since Brown began business in July, Brown's deduction for Year 8 is $59,400 × 6/180 = $1,980.
Mike Reed, a partner in Post Co., received the following distribution from Post: Post's basis/Fair market value Cash$11,000/11,000 Inventory5,000/12,500 Before this distribution, Reed's basis in Post was $25,000. If this distribution were nonliquidating, Reed's basis for the inventory would be
5,000 The $25,000 basis of Reed's partnership interest would first be reduced by the $11,000 of cash received, and then reduced by the $5,000 basis of the inventory to $9,000. Reed's basis for the inventory received is $5,000. Hot asset rule applies to Corps.
Alex Burg, a cash-basis taxpayer, earned an annual salary of $80,000 at Ace Corp. in Year 5, but elected to take only $50,000. Ace, which was financially able to pay Burg's full salary, credited the unpaid balance of $30,000 to Burg's account on the corporate books in Year 5, and actually paid this $30,000 to Burg on January 30, Year 6. How much of the salary is taxable to Burg in Year 5? $50,000 $60,000 $65,000 $80,000
80,000 Since Burg is a cash-basis taxpayer, salary is taxable to Burg when actually or constructively received, whichever is earlier. Since the $30,000 of unpaid salary was unqualifiedly available to Burg during Year 5, Burg is considered to have constructively received it. Thus, Burg must report a total of $80,000 of salary for Year 5; the $50,000 actually received plus $30,000 constructively received.
Fiore owed Lutz $5,000. As the result of an unrelated transaction, Lutz owed Bing that same amount. The three parties signed an agreement that Fiore would pay Bing instead of Lutz and Lutz would be discharged from all liability. The agreement among the parties is
A novation. This answer is correct because a novation is a three-party agreement between the contracting parties and a third party, whereby one of the contracting parties is discharged from his/her duty and the third party is substituted in the discharged party's place. In this case, all three parties agree to discharge the old contracts between Fiore and Lutz, and Lutz and Bing, by the creation of a new contract between Fiore and Bing. The new contract is a novation.
Which of the following promises is supported by legally sufficient consideration and will be enforceable? A person's promise to pay a real estate agent $1,000 in return for the real estate agent's earlier act of not charging commission for selling the person's house. A parent's promise to pay one child $500 because that child is not as wealthy as the child's sibling. A promise to pay the police $250 to catch a thief. A promise to pay a minor $500 to paint a garage.
A promise to pay a minor $500 to paint a garage. This answer is correct because the promise to pay a minor to do some work is fully enforceable unless the minor decides to disaffirm the contract.
In a limited partnership, the limited partners' capital contribution may be in which of the following forms? A promise to perform services in the future for the partnership. An agreement to pay cash. A promise to give property. All of the listed choices.
All of the listed choices. Partners' capital may not only be in cash, property, or services already performed, but also may be in the form of promises to give or perform these at a future date.
For a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller's improper threats Constituted a crime or tort. Would have induced a reasonably prudent person to assent to the contract. Actually induced the purchaser to assent to the contract. Were made with the intent to influence the purchaser.
Actually induced the purchaser to assent to the contract. This answer is correct because duress are threats that overcome one's free will inducing that person to assent to the contract. It is the threat, and its influence on the plaintiff, which caused the purchaser to assent to the contract that determines whether duress has taken place.
Which one of the following statements concerning the eligibility requirements for S corporations is not correct? A partnership is not permitted to be a shareholder of an S corporation. An S corporation is permitted to own 75% of the stock of another S corporation. An S corporation is permitted to be a partner in a partnership. An S corporation is permitted to own 100% of the stock of a C corporation.
An S corporation is permitted to own 75% of the stock of another S corporation. This answer is correct. The eligibility requirements restrict S corporation shareholders to individuals (other than nonresident aliens), estates, and certain trusts. Partnerships and C corporations are not permitted to own stock in an S corporation. However, an S corporation is permitted to be a partner in a partnership, and may own any percentage of stock of a C corporation, as well as own 100% of the stock of a qualified subchapter S subsidiary. Note that an S Corp can only own 100% of another S Corp thus 75% of ownership is not allowed.
Which of the following persons is not an insider of a corporation subject to the Securities Exchange Act of 1934 registration and reporting requirements?
An owner of 15% of the total face value of the corporation's outstanding debentures. This answer is correct because under the Securities Exchange Act of 1934, insiders include officers, directors, and beneficial owners of more than 10% of any class of the issuer's equity securities. An owner of 15% of the total face value of the corporation's outstanding debentures therefore does not qualify as an insider.
On April 5, Anker, Inc. furnished Bold Corp. with Anker's financial statements dated March 31. The financial statements contained misrepresentations which indicated that Anker was solvent when in fact it was insolvent. Based on Anker's financial statements, Bold agreed to sell Anker 90 computers, "FOB—Bold's loading dock." On April 14, Anker received 60 of the computers. The remaining 30 computers are in the possession of the common carrier and in transit to Anker. With respect to the remaining 30 computers in transit, which of the following statements is correct if Anker refuses to pay Bold in cash and Anker is not in possession of a negotiable document of title covering the computers?
Bold may stop delivery of the computers to Anker despite the fact that title had passed to Anker. This answer is correct. A seller is entitled to stop the delivery of goods in the hands of a carrier if an insolvent buyer who is not in possession of the document of title refuses to pay cash. Therefore, Bold may stop delivery of the computers since Anker refuses to pay in cash and is not in possession of the document of title.
Partnership Adams, Baxter, Carter, and Dudley has the following partners' interests: Partner Partnership Interest Adams 45% Baxter 30% Carter 15% Dudley10% The partners agree to separate and form the partnerships of Baxter & Carter and Adams & Dudley. What is (are) the effect(s) of the separation? I.Partnership Baxter & Carter is considered a new partnership and must adopt a taxable year, as well as make other tax accounting elections. II.Partnership Adams & Dudley is treated as a continuation of the former partnership.
Both I and II. This answer is correct. Partnership Adams and Dudley is a continuation of the former partnership, as Adams and Dudley owned 55% (45% + 10%) of the former partnership. Since Baxter and Carter owned only 45% (30% + 15%) of the prior partnership, partnership Baxter & Carter is a new partnership. As a new partnership, partnership Baxter & Carter must adopt a taxable year, as well as make other tax accounting elections.
Which of the following is not necessary to create an express partnership? Execution of a written partnership agreement. Agreement to share ownership of the partnership. Intention to conduct a business for profit. Intention to create a relationship recognized as a partnership.
Execution of a written partnership agreement. This answer is correct. A partnership is an association of two or more persons to carry on a business as co-owners for profit. A partnership is formed by an agreement which can be express, implied, or apparent. The partnership that is formed by express agreement need not be in writing; rather, it may be formed orally. Thus, execution of a written partnership agreement is not necessary to create an express partnership. A written partnership agreement is not required unless the agreement falls within the Statute of Frauds.
Donaldson reached the mandatory retirement age as a partner of the Malcomb and Black partnership. Edwards was chosen by the remaining partners to succeed Donaldson. The remaining partners agreed to assume all of Donaldson's partnership liability and released Donaldson from such liability. Additionally, Edwards expressly assumed full liability for Donaldson's partnership liability incurred prior to retirement. Which of the following is correct? Edward's assumption of Donaldson's liability was a matter of form since as an incoming partner he was liable as a matter of law. Firm creditors are not precluded from asserting rights against Donaldson for debts incurred while she was a partner, the agreements of Donaldson and the remaining partners notwithstanding. Donaldson has no continuing potential liability to firm creditors as a result of the agreements contained in the retirement plan. Since Donaldson obtained a release from firm debts she has no liability for debts incurred while she was a partner.
Firm creditors are not precluded from asserting rights against Donaldson for debts incurred while she was a partner, the agreements of Donaldson and the remaining partners notwithstanding. This answer is correct because a retiring partner is liable to creditors for existing debts of the partnership, but not for those incurred after retirement, as long as creditors had notice of the retirement before extending the credit. Partners may agree not to hold a retiring partner liable among themselves, but they cannot prevent him from being held personally liable by third parties. Therefore, when Donaldson leaves the partnership, she is still individually liable on all past contracts and obligations, unless existing creditors agree to release her and look to the new incoming partner, Edwards (a novation).
Bean defaulted on a promissory note payable to Gray Co. The note was secured by a piece of equipment owned by Bean. Gray perfected its security interest on May 29 Bean had also pledged the same equipment as collateral for another loan from Smith Co. after he had given the security interest to Gray. Smith's security interest was perfected on June 30. Bean is current in his payments to Smith. Subsequently, Gray took possession of the equipment and sold it at a private sale to Walsh, a good-faith purchaser for value. Walsh will take the equipment Free of Smith's security interest because Bean is current in his payments to Smith. Free of Smith's security interest because Walsh acted in good faith and gave value. Subject to Smith's security interest because the equipment was sold at a private sale. Subject to Smith's security interest because Smith is a purchase money secured creditor.
Free of Smith's security interest because Walsh acted in good faith and gave value. A good-faith purchaser for value at a private sale will take the property free from any security interest or subordinate liens in the property, but remains subject to security interests which are senior to that being discharged at the sale. In this case, Smith perfected his security interest later than Gray and has a subordinate interest in the property. Thus, Walsh takes the equipment free from this subordinate security interest.
Funston, a retailer, shipped goods worth $600 to a customer by using a common carrier. The contract used by the common carrier, and agreed to by Funston, limited liability to $100 unless a higher fee is paid. Funston did not pay the higher fee. The goods were shipped FOB destination point and were destroyed in transit due to a flash flood. Which of the following is correct? Funston will suffer a loss of $500. Funston will suffer a loss of $600. Funston's customer will suffer a loss of $500. Funston's customer will suffer a loss of $600.
Funston will suffer a loss of $600. Common carriers are not liable for losses due to causes deemed acts of God. Although a common carrier may limit its damages to a dollar amount specified in the contract, it is not liable at all in this case. Funston, not the customer, had the risk of loss due to the FOB terms.
West promised to make Noll a loan of $180,000 if Noll obtained sureties to secure the loan. Noll entered into an agreement with Carr, Gray, and Pine to act as cosureties on his loan from West. The agreement between Noll and the cosureties provided for compensation to be paid to each of the cosureties. It further indicated that the maximum liability of each cosurety would be as follows: Carr $180,000, Gray $60,000, and Pine $120,000. West accepted the commitment of the sureties and made the loan to Noll. After paying nine installments totaling $90,000, Noll defaulted. Gray's debts (including his surety obligation to West on the Noll loan) were discharged in bankruptcy. Subsequently, Carr properly paid the entire debt outstanding of $90,000. What amounts may Carr recover from the cosureties?
Gray $0 Pine $36,000 The right of contribution entitles the performing cosurety to reimbursement from the other cosureties for their pro rata shares of the liability. Since Gray's debts have been discharged in bankruptcy, Carr may only exercise his right of contribution against Pine, and may recover nothing from Gray. Pine's pro rata share of the remaining $90,000 would be determined as follows:
Reilly has agreed to purchase some stock of Jansen Corporation. Which of the following types of consideration or value is(are) sufficient to purchase this stock? I.Services already performed by Reilly. II.Services promised by Reilly to be performed at a later date. III.Negotiable promissory note to pay cash.
I, II and III. This answer is correct. All three items are sufficient consideration under The Revised Model Business Corporations Act.
Parr is the vice president of research of Lynx, Inc. When hired, Parr signed an employment contract prohibiting Parr from competing with Lynx during and after employment. While employed, Parr acquired knowledge of many of Lynx's trade secrets. If Parr wishes to compete with Lynx and Lynx refuses to give Parr permission, which of the following statements is correct? Parr has the right to compete with Lynx upon resigning from Lynx. Parr has the right to compete with Lynx only if fired from Lynx. In determining whether Parr may compete with Lynx, the court should not consider Parr's ability to obtain other employment. In determining whether Parr may compete with Lynx, the court should consider, among other factors, whether the agreement is necessary to protect Lynx's legitimate business interests.
In determining whether Parr may compete with Lynx, the court should consider, among other factors, whether the agreement is necessary to protect Lynx's legitimate business interests. This answer is correct because for a covenant not to compete to be enforceable, the agreement must be necessary to protect Lynx's legitimate interests. In deciding the issue, the court will balance Parr's ability to obtain other employment against Lynx's right to protect its business.
Kent Construction Company contracted to construct four garages for Magnum, Inc., according to specifications provided by Magnum. Kent deliberately substituted 2 x 4s for the more expensive 2 x 6s called for in the contract in all places where the 2 x 4s would not be readily detected. Magnum's inspection revealed the variance and Magnum is now withholding the final payment on the contract. The contract was for $100,000, and the final payment would be $25,000. Damages were estimated to be $15,000. In a lawsuit for the balance due, Kent will Prevail on the contract, less damages of $15,000, because it has substantially performed. Prevail because the damages in question were not substantial in relation to the contract amount. Lose because the law unqualifiedly requires literal performance of such contracts. Lose all rights under the contract because it has intentionally breached it.
Lose all rights under the contract because it has intentionally breached it. This answer is correct because under the doctrine of substantial performance, a contract obligation may be discharged even though the performance tendered was not in complete conformity with the terms of the agreement. Under this doctrine, if it can be shown that the defect in performance was only minor in nature, a good-faith effort was made to conform completely with the terms of the agreement, and if the performing party is willing to accept a decrease in compensation equivalent to the amount of the minor defect in performance, the contractual obligation will be discharged. Since Kent did not make a good-faith effort to conform to the terms of the agreement, but in fact intentionally breached it, their obligation will not be discharged and they will lose all rights under the contract.
Fairwell is executive vice president and treasurer of Wonder Corporation. He was named as a party in a shareholder derivative action in connection with certain activities he engaged in as a corporate officer. In the lawsuit, it was determined that he was liable for negligence in performance of his duties. Fairwell seeks indemnity from the corporation for his liability. The board would like to indemnify him. The Articles of Incorporation do not contain any provisions regarding indemnification of officers and directors. Indemnification: Is not permitted since the Articles of Incorporation do not so provide. Is permitted only if he is found not to have been grossly negligent. Cannot include attorney's fees since he was found to have been negligent. May be permitted by court order despite the fact the Fairwell was found to be negligent.
May be permitted by court order despite the fact the Fairwell was found to be negligent. This answer is correct because corporations have the power to properly indemnify their directors or officers for expenses incurred in defending suits against them for conduct undertaken in their official and representative capacity on behalf of the corporation. However, in shareholder derivative suits, normally no indemnification is permitted where the director or officer has been adjudged to be liable for negligence in the performance of his duty to the corporation. However, if the court in which the action or suit was brought determines that, despite the adjudication of liability, the director or officer is fairly and reasonably entitled to indemnification under the circumstances, then indemnification may be permitted regardless of the fact that the Articles of Incorporation do not provide therefor.
Which one of the following is a corporate reorganization as defined in the Internal Revenue Code? Mere change in place of organization of one corporation Stock redemption Change in depreciation method from accelerated to straight line Change in inventory costing method from FIFO to LIFO
Mere change in place of organization of one corporation Corporate reorganizations generally receive nonrecognition treatment. Sec. 368 of the Internal Revenue Code defines seven types of reorganization, one of which is listed. An "F" reorganization is a mere change in identity, form, or place of organization of one corporation. A stock redemption is not a reorganization but instead results in dividend treatment or qualifies for exchange treatment. A change of depreciation method or inventory method is a change of an accounting method.
In 2022, Alan Kott provided more than half the support for his following relatives, none of whom qualified as a member of Alan's household: CousinNieceFoster parent None of these relatives had any income, nor did any of these relatives file an individual or joint return. All of these relatives are U.S. citizens. Which of these relatives could be claimed as a dependent in 2022? No one Niece Cousin Foster parent
Niece Correct! One of the requirements that must be satisfied to claim an individual as a qualifying relative is that the person must be (1) of specified relationship to the taxpayer or (2) a member of the taxpayer's household. Cousins and foster parents are not of specified relationship and only qualify if a member of the taxpayer's household. Since Alan's cousin and foster parent do not qualify as members of Alan's household, only Alan's niece can be claimed as a dependent.
Hart and Ruck formed a limited partnership in which Hart was a general partner and Ruck was a limited partner. A certificate of limited partnership was filed with the secretary of state. Which of the following is correct under the Revised Uniform Limited Partnership Act? Both Hart's and Ruck's names must appear on the certificate of limited partnership unless a waiver is granted. Ruck's name need not appear on the certificate of limited partnership as long as his name appears in the partnership name. Only Hart's name must appear on the certificate of limited partnership. The certificate of limited partnership requires that at least one of Hart's or Ruck's name appears on it.
Only Hart's name must appear on the certificate of limited partnership. This answer is correct. The certificate of limited partnership requires the names of the general partners, but not the limited partners.
George and Suzanne have been married for 40 years. Suzanne inherited $1,000,000 from her mother. Assume that the annual gift tax exclusion is $16,000. What amount of the $1,000,000 can Suzanne give to George without incurring a gift tax liability? $ 16,000 $ 32,000 $ 500,000 $1,000,000
READ THE F'ING QUESTION: $1,000,000 This answer is correct. In computing the gift tax, there is an unlimited marital deduction that applies to gifts to a taxpayer's spouse after first subtracting the annual exclusion. Thus, the $1 million gift to the spouse is fully offset by an annual exclusion and marital deduction and does not result in a taxable gift.
Wert, an employee of Salam Corp., signed an agreement not to compete with Salam during and after being employed with Salam. Wert is the director of research and has knowledge of many of Salam's trade secrets. If Wert's employment with Salam is terminated and Wert wishes to compete with Salam, which of the following statements is not correct? The agreement is only enforceable if Wert voluntarily terminates his employment with Salam. The agreement must be necessary to protect Salam's legitimate interests in order to be enforceable. The geographic area covered by the agreement must be reasonable in order to be enforceable. The court will consider Wert's ability to obtain other employment against Salam's right to protect its business.
READ THE F'ING QUESTION: The agreement is only enforceable if Wert voluntarily terminates his employment with Salam. This answer is correct. When deciding whether a covenant not to compete is enforceable, it is irrelevant whether the employee voluntarily terminates his employment. To be enforceable, the agreement must protect Salam's legitimate interests and the geographic area covered must be reasonable. In deciding the issue, the court will balance Wert's ability to obtain other employment against Salam's right to protect its business.
Which of the following is not a defense that a surety may use to avoid payment of a debtor's obligation to a creditor? The creditor had committed fraud against the debtor to induce the debtor to take on the debt with this creditor. The creditor had committed fraud against the surety to induce the surety to guarantee the debtor's payment of a loan. The statute of limitations has run on the debtor's obligation. The debtor took out bankruptcy.
READ THE F'ING Question: The debtor took out bankruptcy. Personal defenses that the debtor has such as bankruptcy or death of the debtor cannot be used by the surety to avoid payment of the debtor's obligation to the creditor.
Which of the following statements applies to a sale on approval under the UCC Sales Article? Both the buyer and seller must be merchants. The buyer must be purchasing the goods for resale. Risk of loss for the goods passes to the buyer when the goods are accepted after the trial period. Title to the goods passes to the buyer on delivery of the goods to the buyer.
Risk of loss for the goods passes to the buyer when the goods are accepted after the trial period. The purchase of goods on a sale on approval allows the buyer to return the goods even if they conform to the contract. Therefore, the seller retains the title and the risk of loss until the buyer accepts the goods.
Mead Corp. orally engaged Dex & Co., CPAs, to audit its financial statements. The management of Mead informed Dex that it suspected that the accounts receivable were materially overstated. Although the financial statements audited by Dex did, in fact, include a materially overstated accounts receivable balance, Dex issued an unqualified opinion. Mead relied on the financial statements in deciding to obtain a loan from City Bank to expand its operations. City relied on the financial statements in making the loan to Mead. As a result of the overstated accounts receivable balance, Mead has defaulted on the loan and has incurred a substantial loss. If Mead sues Dex for negligence in failing to discover the overstatement, Dex's best defense would be that No engagement letter had been signed by Dex. The audit was performed by Dex in accordance with generally accepted auditing standards. Dex was not in privity of contract with Mead. Dex did not perform the audit recklessly or with an intent to deceive.
The audit was performed by Dex in accordance with generally accepted auditing standards. This answer is correct. The final objective of an external financial audit is to express an opinion as to the fairness of the financial statements. In meeting this objective, the CPA must adhere to GAAS. At no time during the audit does the CPA assure that all material errors or irregularities will be detected. Therefore, if Dex and Co. prove that the audit was performed in accordance with GAAS, this will be their best defense against Mead. Note that although following GAAS does not automatically preclude negligence, it is strong evidence towards showing the presence of due care.
Barton Corporation and Clagg Corporation have decided to combine their separate companies pursuant to the provisions of their state corporation laws. After much discussion and negotiation, they decided that a consolidation was the appropriate procedure to be followed. Which of the following is an incorrect statement with respect to the contemplated statutory consolidation? A statutory consolidation pursuant to state law is recognized by the Internal Revenue Code as a type of tax-free reorganization. The larger of the two corporations will emerge as the surviving corporation. Creditors of Barton and Clagg will have their claims protected despite the consolidation. The shareholders of both Barton and Clagg must approve the plan of consolidation.
The larger of the two corporations will emerge as the surviving corporation. This answer is correct because the statement is false. A consolidation is the unifying of two or more corporations into one new corporation, extinguishing both existing corporations.
Knight signed a lease specifying that if the $400-per-month rent was not received by the fifth of each month, Knight would owe the landlord $25 as liquidated damages for every day that the rent was late. In January, Knight failed to pay the rent until the 21st of the month. The landlord insisted that Knight pay $800 because Knight owed $400 for the rent and $400 in late charges. What is most likely to be a court's ruling? The landlord was entitled to $800 because the lease provided for late charges of $25 per day. The late charges constituted a penalty because they were excessive. Knight knowingly and voluntarily signed the lease and must pay the specified late charges. The landlord was prohibited from including a liquidated damages clause in Knight's lease.
The late charges constituted a penalty because they were excessive. CORRECT! To the extent that liquidated damages become a penalty, they are void. They cross into penalty territory when then penalty is equal to or more than the actual contract cost.
In general, which of the following must be contained in Articles of Incorporation? Names of the initial officers and their terms of office. The name and address of each incorporator. Names of states in which the corporation will be doing business. Name of the state in which the corporation will maintain its principal place of business.
The name and address of each incorporator. This answer is correct. The name and address of each incorporator is one of four things that the RMBCA requires to be contained in the Articles of Incorporation. Must include: the corporation's name and business address. the number of authorized shares and the par value (if any) of the shares. the name and address of the in-state registered agent. the names and addresses of its incorporators.
Under the federal Bankruptcy Code, which of the following rights or powers does a trustee in bankruptcy not have? The power to prevail against a creditor with an unperfected security interest. The power to require persons holding the debtor's property at the time the bankruptcy petition is filed to deliver the property to the trustee. The right to use any grounds available to the debtor to obtain the return of the debtor's property. The right to avoid any statutory liens against the debtor's property that were effective before the bankruptcy petition was filed.
The right to avoid any statutory liens against the debtor's property that were effective before the bankruptcy petition was filed. Under the federal Bankruptcy Code, a trustee in bankruptcy may set aside statutory liens that become effective when the bankruptcy petition is filed but may not set aside those that were effective before the bankruptcy petition was filed. Therefore, this answer is correct.
Smith, an executive of Apex Corporation, became emotionally involved with Jones. At the urging of Jones, and fearing that Jones would sever their relationship, Smith reluctantly signed a contract which was grossly unfair to Apex. Apex's best basis to rescind the contract would be Lack of express authority. Duress. Undue influence. Lack of consideration.
Undue influence. This answer is correct. Undue influence occurs when one party entering into a contract is so greatly influenced by his/her relationship with the second party of the contract that the first party does not exercise free will in entering into the contract. In this case, Smith was unduly influenced by Jones because of their close personal relationship. Even though Smith, as an executive, is only an agent of Apex, it is as if the undue influence were exerted over Apex, the principal. Thus, Apex will be able to avoid the contract.
Walker tells Side that she will hire him for 10 months' work for $6,000 per month starting 6 months from now. Side accepts. When Side proceeds to work for Walker, Walker refuses, pointing out that their contract was not in writing. Side admits the lack of a written contract but claims they still have an enforceable contract. Who wins?
Walker because this contract needed to be in writing. This answer is correct. This contract could not be completed until 16 months after the making of the contract. Therefore, it had to be written since it fell under the Statute of Frauds since it could not be completed within 1 year of the making of the contract. (Doesn't matter if Walker admitted to the oral contract)
