FAC Finance and Accounting Taxation & Regulatory Compliance 2 — Questions and Answers
Question 1: Under IRC Section 199A, qualified business income (QBI) deduction for pass-through entities is generally limited to what percentage?
- 10%
- 20% (Correct answer)
- 25%
- 30%
Correct answer: 20%
The QBI deduction under IRC Section 199A allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities.
Question 2: Which IRS form must a corporation file to report its annual income tax return?
- Form 1040
- Form 1065
- Form 1120 (Correct answer)
- Form 1099
Correct answer: Form 1120
C corporations file Form 1120, the U.S. Corporation Income Tax Return, to report income, gains, losses, deductions, and credits.
Question 3: The FASB Accounting Standards Codification (ASC) 740 primarily addresses which accounting topic?
- Revenue recognition
- Income taxes (Correct answer)
- Lease accounting
- Business combinations
Correct answer: Income taxes
ASC 740 provides guidance on accounting for income taxes, including current and deferred tax assets and liabilities.
Question 4: A company has a deferred tax liability when:
- Taxable income exceeds book income in the current year
- Book income exceeds taxable income, creating future taxable amounts (Correct answer)
- Tax credits exceed tax liability
- The company operates at a net loss
Correct answer: Book income exceeds taxable income, creating future taxable amounts
A deferred tax liability arises when book income exceeds taxable income, meaning the company will owe more taxes in future periods when those amounts become taxable.
Question 5: Under the Sarbanes-Oxley Act, Section 302 requires corporate officers to certify which of the following?
- Quarterly dividend declarations
- Accuracy of financial statements and disclosure controls (Correct answer)
- Annual audit committee meetings
- Compensation of executive officers
Correct answer: Accuracy of financial statements and disclosure controls
SOX Section 302 requires the CEO and CFO to personally certify the accuracy of financial statements and the effectiveness of disclosure controls and procedures.
Question 6: Which method of inventory valuation is NOT permitted under IFRS?
- FIFO
- Weighted average cost
- LIFO (Correct answer)
- Specific identification
Correct answer: LIFO
IFRS prohibits the use of LIFO (Last-In, First-Out) for inventory valuation, while U.S. GAAP permits it.
Question 7: The IRS statute of limitations for assessing additional tax on a filed return is generally:
- 1 year
- 3 years (Correct answer)
- 5 years
- 7 years
Correct answer: 3 years
The IRS generally has 3 years from the date a return is filed to assess additional taxes, though this period extends to 6 years if more than 25% of income is omitted.
FAC Finance and Accounting Taxation & Regulatory Compliance 2
Under IRC Section 199A, qualified business income (QBI) deduction for pass-through entities is generally limited to what percentage?