Enrolled Agent Exam Prep - Part 2 Latest Update

Enrolled Agent Exam Prep - Part 2 Latest Update

• 250+ Questions and

100% Verified Correct Answers Guaranteed A+

A cash-basis taxpayer should report gross income

• Only for the year in which income is actually received in cash.
• For the year in which income is either actually or constructively received in cash only.
• Only for the year in which income is actually received whether in cash or in property.
• For the year in which income is either actually or constructively received, whether in

cash or in property. - CORRECT ANSWER: D

A domestic LLC with at least two members that does not file Form 8832, Entity Classification Election, is classified as

• An entity disregarded as an entity separate from its owners by applying the rules in

Regulations Section 301.7701-3

• A partnership
• A corporation
• A non-entity that requires members to report the income and related expenses on

Form 1040 - CORRECT ANSWER: B

A tornado destroyed Ian's forklift in 2016. Ian had purchased the forklift for $8,000 and had correctly deducted $6,000 of depreciation. Ian's adjusted basis in the forklift was $2,000. Ian's insurance company reimbursed him $9,000, and he spent $7,500 for a new forklift. How much ordinary income should Ian report on his 2016 income tax return?

• $0

B. $1,500

C. $6,000

D. $7,000 - CORRECT ANSWER: B

Based on the following information, what is the amount of Beth's self-employment income?

Salary from her S corp $15000 Partnership income (general partner) $8000 Corporate director's fees $1500 Payment from insurance company for lost income $10000

A. $1500

B. $9500 1 / 4

C. $19500

D. $24500 - CORRECT ANSWER: C

Bobby Rice is an unincorporated grain farmer in Louisiana with a calendar year end.Bobby does not live or farm in a disaster area. Bobby computed an estimated tax liability of $25000 for 2016. To avoid the failure to pay estimated tax penalty, Bobby should

• Make his first 2016 estimated tax payment by March 1, 2017
• Pay all his 2016 estimated taxes by February 15, 2017, and file his tax return by April

15, 2017

• Include any alternative minimum tax he expects to owe in his calculation of 2016

estimated taxes

• Pay all of his 2016 estimated taxes by the due date of his return. - CORRECT

ANSWER: C

Dan, a calendar-year taxpayer, has the following amounts of gross income for 2016:

Wages $10,000 Interest $2000 Farm Income $200,000

Dan has tax, including self-employment tax, of $20,000, and withholding of $1000. To avoid any filing or estimated tax penalties, Dan must

• File an estimated tax payment by January 15, 2017, and pay 60% of the tax due
• File his tax return and pay all the tax due by March 1, 2017
• File an estimated tax payment by March 1, 2017, and pay 66 2/3% of the tax due
• File his tax return and pay all the tax due by April 15, 2017 - CORRECT ANSWER: B

During 2016, Ms. Smith had the following expenditures relating to commercial real

estate she owns:

County property tax, $1,975 State property tax, $980 Assessment for sewer construction, $1,500 Charges for sewer and water service, $810

What is the amount Ms. Smith may deduct as real estate taxes on her commercial real estate for 2016?

A. $2,955

B. $4,455

C. $3,765

D. $5,265 - CORRECT ANSWER: A

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Erin earned $1000 in interest in 2014. Erin withdrew $700 in 2015 and $300 in 2016.How much of the original $1000 should Erin report as interest earned in 2016?

• $0

B. $300

C. $700

D. $1000 - CORRECT ANSWER: A

Farm income averaging is computed on Schedule J, which may be filed

• For the current year when a taxpayer files Schedule F showing a farm loss
• For the current year that includes Schedule F showing net income from farming
• Only by IRS after the taxpayer's return is completed and reviewed
• On a family farming corporation with less than $25 million in gross receipts -

CORRECT ANSWER: B

Farmer John, a cash-basis farmer, operates a cow-calf breeding operation. The breeder cows are not primarily held for sale. In addition to the calves raised on his farm, John also purchases calves for resale. During 2016 John had the following acquisitions and

dispositions of cattle:

Purchase of 30 calves for resale $3400 Sale of 30 calves purchased for resale $6100 Sale of 45 calves raised by John $10,400 Sale of 10 breeder cows $6750 Original cost of breeder cows $5500 Accumulated depreciation of breeder cows $2860

What amount should John include in gross income on his Schedule F for 2016?

A. $13080

B. $14510

C. $16500

D. $18580 - CORRECT ANSWER: A. $13,080 = [10,400 + (6100 - 3420)]

Farmer John, a cash-basis taxpayer, bought $3000 of cattle feed in Year 1 for use in Year 2. John's other farming expenses for Year 1 amounted to $2000. In prior years he also had prepaid expenses in excess of non-prepaid expenses. How much and when is the cattle feed deductible?

Year 1 Year 2

A. $0 $1000

B. $0 $3000

C. $1000 $2000

D. $3000 $0 - CORRECT ANSWER: C

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Frank files a joint return with his wife, Rose. Frank incurred a loss of $125,00 on the sale of his qualifying small business stock (Sec. 1244) in 2016. How much of this loss is deductible on their joint return as an ordinary loss?

A. $125,000

B. $3000

C. $100,00

D. $50,000 - CORRECT ANSWER: C - because it is a joint return

Generally, a substantial business inventory requires use of which method of accounting?

• Cash
• Hybrid
• Accrual

D. None of the answers are correct - CORRECT ANSWER: C

Generally, all of the following entities may use the cash method of accounting except

• A family farming corporation with gross receipts of $25 million or less.
• An entity with no inventories and average gross receipts of $5 million or less.
• A qualified personal service corporation.

D. A corporation that has long-term contracts. - CORRECT ANSWER: D

If at least two-thirds of your gross income for 2015 or 2016 was from farming, only one estimated tax payment is due. The required annual payment is the

• Larger of two-thirds of your total tax for 2016 or 100% of the total tax shown on your

full-year 2015 return

• Smaller of two-thirds of your total tax for 2015 or 100% of the total tax shown on your

full-year 2016 return

• Larger of two-thirds of your total tax for 2015 or 100% of the total tax shown for your

full-year 2016 return

• Smaller of two-thirds of your total tax for 2016 or 100% of the total tax shown on your

full-year 2015 return - CORRECT ANSWER: D

If you sell more livestock than you normally would in a year because of a drought, flood, or other weather-related condition, you may be able to postpone reporting the gain from selling the additional animals until the next year. You must meet all of the following conditions to make the election except

• You can show that, under your usual business practices, you would not have sold the

animals this year except for the weather-related conditions

• The weather-related conditions caused an area to be designated as eligible for

assistance by the federal government

• You use the accrual method of accounting
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