WILEY CPA REG PRACTICE EXAM B
PART I QUESTIONS AND ANSWERS
WITH COMPLETE SOLUTIONS ||LATEST
UPDATED 2025
Mr. Kitten purchased an annuity contract for $50,000 from the XYZ Company on
March 31, 2020. He is to receive $1,000 per month starting April 1, 2020, and
continuing for life. He has a life expectancy of 10 years as of March 31, 2020. Mr.
Kitten's reportable annuity income for 2020 is: - ANSWER✔✔ $5,250.
Mr. Kitten's expected return is 120 months × $1,000, or $120,000. His basis in the
annuity is $50,000, so his exclusion ratio is 41.67% ($50,000/$120,000). He
received nine payments totaling $9,000 in 2020, and $3,750 is excluded from
income. Therefore, $5,250 is included in income ($9,000 − $3,750).
Able CPA was engaged by Wedge Corp. to audit Wedge's financial statements.
Wedge intended to use the audit report to obtain a $10 million loan from Care
Bank. Able and Wedge's president agreed that Able would give an unqualified
opinion on Wedge's financial statements in the audit report even though there were
material misstatements in the financial statements. Care refused to make the loan.
Wedge then gave the audit report to Ranch to encourage Ranch to purchase $10
million worth of Wedge common stock. Ranch reviewed the audit report and relied
on it to purchase the stock. After the purchase, Able's agreement with Wedge's
president was revealed. As a result, Wedge stock lost half its value and Ranch sued
Able for fraud. What will be the result of Ranch's suit? - ANSWER✔✔ Ranch will
win because Able intentionally gave an unqualified opinion on Wedge's materially
misstated financial statements.
Because this is a fraud case, Able is generally liable to all "reasonably foreseeable"
victims of its misstatements. As applied in a majority of jurisdictions, this rule
would likely lead to liability here. It is reasonably foreseeable to Able that a client
needing money would show these audit reports to potential investors.
, Sam has been engaged in an illegal business this year related to electronically
stealing funds from individuals' bank accounts. Which of the following items is not
deductible on his business tax return for the year? - ANSWER✔✔ The salaries,
rent expense, and interest expense are all deductible.
The ordinary, necessary, and reasonable expenses of operating illegal businesses
(other than illegal drug activity) are permitted (as long as the expense itself is not
against public policy). Therefore, all of these expenses are deductible against the
revenue earned from the activities.
Gem Corp. purchased all the assets of a sole proprietorship, including the
following intangible assets:
Goodwill $50,000
Covenant not to compete 13,000
For tax purposes, what amount of these purchased intangible assets should Gem
amortize over the specific statutory cost recovery periods? - ANSWER✔✔
$63,000
Goodwill is always amortizable. Covenants not to compete qualify if acquired in
connection with the acquisition of a trade or business. Therefore, $63,000 can be
amortized.
Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also
received, as a fringe benefit, group term-life insurance at twice Johnson's salary.
The annual IRS-established uniform cost of insurance is $2.76 per $1,000. What
amount must Johnson include in gross income? - ANSWER✔✔ $100,414
PART I QUESTIONS AND ANSWERS
WITH COMPLETE SOLUTIONS ||LATEST
UPDATED 2025
Mr. Kitten purchased an annuity contract for $50,000 from the XYZ Company on
March 31, 2020. He is to receive $1,000 per month starting April 1, 2020, and
continuing for life. He has a life expectancy of 10 years as of March 31, 2020. Mr.
Kitten's reportable annuity income for 2020 is: - ANSWER✔✔ $5,250.
Mr. Kitten's expected return is 120 months × $1,000, or $120,000. His basis in the
annuity is $50,000, so his exclusion ratio is 41.67% ($50,000/$120,000). He
received nine payments totaling $9,000 in 2020, and $3,750 is excluded from
income. Therefore, $5,250 is included in income ($9,000 − $3,750).
Able CPA was engaged by Wedge Corp. to audit Wedge's financial statements.
Wedge intended to use the audit report to obtain a $10 million loan from Care
Bank. Able and Wedge's president agreed that Able would give an unqualified
opinion on Wedge's financial statements in the audit report even though there were
material misstatements in the financial statements. Care refused to make the loan.
Wedge then gave the audit report to Ranch to encourage Ranch to purchase $10
million worth of Wedge common stock. Ranch reviewed the audit report and relied
on it to purchase the stock. After the purchase, Able's agreement with Wedge's
president was revealed. As a result, Wedge stock lost half its value and Ranch sued
Able for fraud. What will be the result of Ranch's suit? - ANSWER✔✔ Ranch will
win because Able intentionally gave an unqualified opinion on Wedge's materially
misstated financial statements.
Because this is a fraud case, Able is generally liable to all "reasonably foreseeable"
victims of its misstatements. As applied in a majority of jurisdictions, this rule
would likely lead to liability here. It is reasonably foreseeable to Able that a client
needing money would show these audit reports to potential investors.
, Sam has been engaged in an illegal business this year related to electronically
stealing funds from individuals' bank accounts. Which of the following items is not
deductible on his business tax return for the year? - ANSWER✔✔ The salaries,
rent expense, and interest expense are all deductible.
The ordinary, necessary, and reasonable expenses of operating illegal businesses
(other than illegal drug activity) are permitted (as long as the expense itself is not
against public policy). Therefore, all of these expenses are deductible against the
revenue earned from the activities.
Gem Corp. purchased all the assets of a sole proprietorship, including the
following intangible assets:
Goodwill $50,000
Covenant not to compete 13,000
For tax purposes, what amount of these purchased intangible assets should Gem
amortize over the specific statutory cost recovery periods? - ANSWER✔✔
$63,000
Goodwill is always amortizable. Covenants not to compete qualify if acquired in
connection with the acquisition of a trade or business. Therefore, $63,000 can be
amortized.
Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also
received, as a fringe benefit, group term-life insurance at twice Johnson's salary.
The annual IRS-established uniform cost of insurance is $2.76 per $1,000. What
amount must Johnson include in gross income? - ANSWER✔✔ $100,414
