 Hello and welcome to the session. This is Professor Farhad and the session we would review. Used CPA question that was previously released by the AI CPA. Those questions are the real deal. Those questions will give you an idea. What the, how the AI CPA tests you on the exam day. Specifically, we're gonna be looking at regulation questions. As always, I would like to remind you to connect with me on LinkedIn if you haven't done so. YouTube is where I house my 1,600 plus. Accounting, auditing, finance and tax lectures. This is a list of all the courses that I cover, including hundreds of CPA questions. On my website, you will find additional material, such as PowerPoint sites, true, false, multiple choice, CPA simulation, 2,000 plus CPA questions. If you're studying for your accounting courses or studying for your CPA exam, I strongly suggest you give me a visit. Let's take a look at the first question. And in the box here, you would see, for example, income tax scores, chapter 17. It means this topic is covered in my income tax scores, chapter 17. So this question is about consolidated taxable income, consolidated return. PressCorp and S1Corp file a consolidated return. The companies have the following items of income and deduction for the current year. Income from operation, section 1231 losses, capital gain losses. This is what we have. So the question is, what is press and swap consolidated taxable income? And you have to know a little bit about consolidated tax income. I don't think they will give you a simulation. I mean, I'll be shocked if they give you a simulation about consolidated taxable income. But as a CPA candidate, you need to know how they compute taxable income in a consolidated return. You need to know the basic rules. And by the way, on my website, if you go to my website, I have a 15 minute lecture about specifically this topic. So you can go there if you're interested and you can learn about this topic. Okay, so the question is, what is the consolidated taxable income? Let's start with the 80 and the 40. Do we consolidate those two, of course? So taxable income for the two is 120,000. Now, are we done yet? No, we have section 1231 loss. We can deduct 12,000. Are we done yet? No, we have capital gain and capital losses. We have capital gain of four, capital losses of three. Well, we still have a net capital gain of a thousand. Now we can look at the net. So this is going to be so 120 minus 12 plus one, 109, and the answer is 109. So you need to know what's included and how it's included, okay? Let's take a look at this question. It also deals with consolidation, okay? So Rake, Steel and Urco, all accrual basis calendar year C corporation has only two voting common stock outstanding. Has only voting common stock outstanding. Rake owns 85% of Steel, okay? And 40% of Urco. Steel owns 50% of Urco. Which group of corporation qualifies and which group of corporation qualifies as an affiliate group and major in the filing of the tax return? Obviously, you already know that Rake own 85% of S, that's good enough. But since S owns 50% of you and R own 50% of you, they own 90% of you, it's also part of the group. Therefore, all of them are included in this affiliated group. So the answer is C. And this is income tax course, okay? 23, Sunshine Corporation, a wholly owned subsidiary of Peerport Court purchase land from Peerport for its fair market value of 10,000 on January 1st of the prior tax year, okay? Peerport adjusted basis of the land on the date of the sale is 8,000, fair enough. So they sold the land for 10,000 to a related party for 8,000. During the tax year, Sunshine sold the land for 9,000 to unrelated party. What gain or loss will be reported on the consolidated tax return filed by Sunshine and Peerport for the current year, for the current year? So they're asking us for the current year. Well, guess what? Here's what happened. First, they sold it to each other, okay? They purchased it from 10,000, okay? So the first transaction is between Sunshine, S and P, okay? So S, which is a subsidiary of Peer, okay? We have S and P purchase the land. And when they purchase the land, they pay 10,000. Therefore, Peer had a gain of 2,000. Peer had a gain of 2,000 from the first transaction. Do we include that gain in the consolidated? No, we don't, no, we don't. Now, now, during the tax year, S, after they purchased the land, S sold the land to outside party for 9,000. They sold it for 9,000. What's the basis? Well, the basis is 8,000. The basis is the original basis, which is we have a gain of 1,000, okay? So notice, the P had a gain of 2,000, but it's not included in the consolidated return because they're part of each other. Why 2,000? Because they sold it for 10. They sold it for 10. And they had a basis of 8. So they had a gain of 2, but that's a related party between the two related party. Peer and subsidiary, it's not counted, okay? So once you sell it to an outsider, then you count the gain in the consolidated return, which is 8,000 basis, 9,000 fair market value. On January 1st, the partner's interest in capital, profit and losses of studio partnership as as follow, Ross, Stone and Taylor, 15, 35 and 50. April 9th, Stone sold the entire interest to Taylor. So Stone sold his entire interest to Taylor for tax purposes, which of the following statement is correct regarding the status as a partnership, okay? So they're asking us A, B, C and D. The partnership terminated as January 1st as of the beginning of the year. There's no reason to select this question because the transaction took place April 9th. Studio terminated as of April 9th, you'll be tempted to do so, but we'll talk about this. Studio terminated as of December 31st. It means the wait until the end of the year, not likely, okay? So you'll be tempted, at this point, if you don't understand the rules, you're gonna be tempted between B and the studio did not terminate. And the correct answer is D, the studio did not terminate. It used under the old rules partnership would determinate once the partnership structure have changed, that's no longer the case. If they're selling between partners, it did not really terminate, okay? But if a third part, another person sold their interest, then we have one person, you know, for example, if Ross also sold their interest ship to Taylor, then it will terminate as of April 9th. Let's assume they both sold it to Taylor but that's not what happened. So the studio did not, the partnership did not terminate and you have to be aware of the new rules. So what is Lake's distributable net income, which is D and I, this is basically trust. I cover this in chapter 24. Lake trust, a simple trust reported the following item of income and expenses during the year. So for the trust, you need to know what's included in distributable net income. Is dividend income, sorry, is dividend income included? Yes. Is taxable interest included? Yes. Capital gain, usually yes, but it's allocable to the corpus. It's allocable to the principal. That's not included. Accounting fees, allocable to income. Yes, accounting fees are deducted or included and it sends their negative. Trustee fees, allocable to income. That's also negative. So basically we have 4,500 here. Then we have deduct from it, 500 were down to 4,000. Deduct from the 4,750 were down to 3250. And the answer is D as in David, D as in David. You need to know a little bit about this topic, state and trust, because why? Why do you need to know about this? It may not be heavily tested on the exam, but look, this is gonna make the difference between a 75 and a 73. Maybe a question like this, who knows, makes the difference between 75 and 75 and 73. So you wanna make sure you learn about the state and trust. It's a complicated topic, but I do have it simplified on my YouTube. As always, I would like to invite you to visit my website where I have more resources for you to pass the CPA exam. This is what I do. I help people pass the exam, invest in your career. My subscription is not that much. It's minimal. You can cancel anytime after one month. Good luck, study hard, and I'm always here to help you succeed in your career.