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AICPA CPA Regulation Sample Questions:

1. On December 1, 1992, Michaels, a self-employed cash basis taxpayer, borrowed $100,000 to use in her
business. The loan was to be repaid on November 30, 1993. Michaels paid the entire interest of $12,000
on December 1, 1992. What amount of interest was deductible on Michaels' 1993 income tax return?

A) $12,000
B) $11,000
C) $0
D) $1,000

2. Which one of the following statements is correct with regard to an individual taxpayer who has elected to
amortize the premium on a bond that yields taxable interest?

A) The bond's basis is increased by the amortization.
B) The bond's basis is reduced by the amortization.
C) The amortization is treated as an itemized deduction.
D) The amortization is not treated as a reduction of taxable income.

3. The rule limiting the allowability of passive activity losses and credits applies to:

A) S corporations.
B) Personal service corporations.
C) Widely-held C corporations.
D) Partnerships.

4. DAC Foundation awarded Kent $75,000 in recognition of lifelong literary achievement. Kent was not
required to render future services as a condition to receive the $75,000. What condition(s) must have
been met for the award to be excluded from Kent's gross income?
I. Kent was selected for the award by DAC without any action on Kent's part.
II. Pursuant to Kent's designation, DAC paid the amount of the award either to a governmental unit or to a
charitable organization.

A) II only.
B) I only.
C) Neither I nor II.
D) Both I and II.

5. Which of the following statements is the best definition of real property?

A) Real property is land and everything permanently attached to it.
B) Real property is all tangible property including land.
C) Real property is land and intangible property in realized form.
D) Real property is only land.

Solutions: