 Hello and welcome to this session. This is Professor Farhad and this session would look at previously used CPA questions Those questions were used by the AI CPA on the actual CPA exam Those questions are the real deal They may appear again on the CPA exam in one way or another if not worth for word, but the same concept will be tested And specifically we're dealing with 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 you would need to subscribe. I have one thousand six hundred plus accounting, auditing, finance and tax lectures This is a list of all the courses that I cover including income tax course and hundred of CPA questions. On my website you will find material such as PowerPoint slides, notes, multiple choice, true-false and two thousand plus CPA questions. I strongly encourage you to visit my website Let's take a look at the first question. So in the blue box here I would reference to you in which chapter this topic is covered in case you need to go go ahead and review the material Okay, so basically the question is what's Austin's share of ordinary income? Fair enough Austin and Baker are equal partners in AB partnership and the tax here the ordinary income for the partnership is 20,000, ordinary income is 20,000 The partnership has a long-term capital gain of 1200 I know I don't I don't care about this because they're asking me for ordinary income and the basis is 40,000 they receive a distribution of 5,000. So what is the ordinary income? Well The only the only ordinary income for Austin is the ordinary income of the partnerships times 50% which is $10,000 Now, why don't we tax the distribution this $5,000 the distribution is assumed to be coming from ordinary income from the profit So that's why it's already taxed. So the ordinary share the ordinary income share for Austin is $10,000 therefore the answer is a these questions These type of questions are very very common on the CPA exams. You want to make sure you are familiar with such scenarios Let's take a look at this question Decker an individual owns 100% of acres and S corporation At the beginning of the year Decker's basis in acre was 25,000 Acres has ordinary income during the year in the amount of 10,000 in a long-term capital loss in the amount of 4,000 Decker has no other capital gains or losses during the year What amount of the long-term capital loss may Decker deduct this year? So this is basically from chapter 22 because it talks about S corporation But really this is not really an S corporation question. Basically what they're asking you here is two things Well, it is part of S corporation, but it's also part of, you know, the rules for capital losses So they're asking you how much long-term capital loss they can deduct. Well, how much long-term Capital loss that they have they have $4,000. Remember long-term capital losses are separately stated Items so if you don't know what separately stated items are well, don't don't take the exam So you want to make sure you know what separately stated items are go my to my chapter 22 and you would learn all about them Now that's the one thing you need to know the second thing you need to know is they have 4,000 of capital losses Well this 4,000 it's gonna transfer to the individuals to the Decker's to Decker personal return and on Decker personal return You can only deduct up to 3,000 so basically this question is testing your knowledge Do you know how much we can deduct in capital losses for an individual per year and the answer is? $3,000 they didn't come out and ask you the question they frame it in a S corporation question to test your knowledge to see if You know the separately stated items Let's take a look at this question this question deals with amt amt tax preference item now make make sure you remember the corporate amt is gone because President Trump lowered the rate to 21% so practically gone This is personal. So West is a single has no dependent and does not itemize West provide the following information in his current year return Now amt is not an easy topic But if you want to learn about amt you can go to my website and I'm sorry to my YouTube I have seven lectures about amt covering amt from a to z So you need to know all these all these lectures in order to have a good understanding So what is the amount of West amt tax preference? Okay? Long-term capital gain. Well long-term capital gain is not an amt item So that's out percentage depletion and access of property adjusted basis is this a Preference item and the answer is yes. This is a preference items You need to know what the preference items are once again Go to my website because there's a lot and you need to have a good understanding about those Preference items or preference items or adjustments. There's other things. You want to make sure you're aware of this Dividend from publicly held companies. It has nothing to do with amt. No amt here So the only thing that's amt and it's a preference is the nine thousand dollar Therefore the answer is a as in alpha. You want to make sure you're comfortable with amt So you can answer questions on the exam This question from chapter 17 and This is schedule M1. What what was prime scurrant? taxable income as reconciled as Prime scheduled one reconciliation of income loss per books with income per return a form 1120 US corporation income tax return again schedule M1 It's those topics then you need to go into the exam feeling 100% comfortable with comfortable with because Surely you will be tested in the multiple-choice setting or you may see this in a in a simulation The good news is on my website. I have plenty of Illustrations and examples about Schedule M1. So this is only the lecture. I have a couple more examples a total of over an hour and either Explanation or actual examples you want to make sure you go there But let's answer this question to see how it works. So prime is an accrual tax basis calendar year C corporation In its current year reported book income before federal income taxes of 300,000, okay? Which included 17,000 of corporate bond interest income? Take it out. It's not affected because corporate bond interest income is Taxable whether it's for tax or book. Therefore, it's treated the same. It's not the reason They gave you this is to confuse you between corporate bond interest income and Municipal which is not taxable, but here they're telling you it's included. I'm gonna keep it Also, what's included a $20,000 expense for long-term life insurance premium on the corporate officers was incurred Prime was the policy owner and the beneficiary. This is important. Hey, here we go So they deducted $20,000 on their books Okay for life insurance premium however, the policy The company is the policy owner and the beneficiary. What does that mean? It means They cannot take the deduction. So this deduction that they took for gap for book purposes gap or book They cannot take for tax. Therefore, we'll have to add $20,000 because the company is the beneficiary. So to come to the taxable income We have this we have to add this back this 20,000. There's nothing else other than that So it's basically one item to reconcile pretty straightforward. The answer is 320,000 schedule M1 is extremely extremely important Everything is important, but Schedule M1 I could assure you you will be asked about and this is another question about schedule M1 What amount should the what should be the amount of virals year-to-taxable income as reconciled as vital schedule M1 of Form 1120 US corporation income tax return. Okay, so vital score is in a cruel basis calendar year It's year-to-reported book income before federal income tax is half a million which included the following items Year one state franchise tax refund $50,000. So simply put we added $50,000 we added We added $50,000 to get to the half a million and this was state franchise tax refund Guess what? We added it's gonna be treated both for tax and book. Therefore, it tends to really no effect Municipal bond interest income also in this in this half a million baked 7,500 of Mooney bonds. What do we need to know about Mooney bonds? Mooney bonds are not Taxable therefore, let me change the color when I come when I when I go to compute my taxable income I have to deduct 4,500 therefore my taxable income is 4,200950 And 4,200950 therefore the answer is V You want to make sure because M1 it could be given as as a whole test let as a whole Task-based simulations you want to be in this will be good news for you if you go to my website and you would learn about schedule M1 Bring it on good news easy points As always, I'm gonna keep reminding you to visit my website You're gonna study for your CPA once invest in your career make that commitment. I'm always here to help you Good luck in study