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CPA Updated
Do services in exchange for stock create ordinary income at corporate formation?
Yes. Stock received in exchange for services is taxable as ordinary compensation income equal to the fair market value of the stock.
How do I compute stock basis and corporate basis in a Section 351 transaction?
Two formulas. Section 358 governs the transferor's basis in stock. Section 362 governs the corporation's basis in property.
When do liabilities assumed trigger gain under Section 357?
Three rules. Section 357(a): general rule. Section 357(b): tax avoidance exception. Section 357(c): excess liability rule.
How does the 80 percent control test work in a Section 351 transfer?
No. A service provider does not count as a property transferor for purposes of the 80 percent control test under Section 368(c).
Why do treasury stock transactions usually bypass gains and losses even when the shares are retired?
Reacquiring, reissuing, or retiring a company's own shares is an owner-equity transaction rather than a performance transaction.
How should a company record treasury shares reissued below their cost when APIC from treasury stock is available?
The company debits cash for the proceeds, debits APIC from treasury stock for the shortfall up to the available APIC balance, and credits treasury stock for the shares' recorded cost.
What is APIC from treasury stock used for under the cost method?
APIC from treasury stock accumulates credits from treasury shares reissued above cost. It can later absorb shortfalls when treasury shares are reissued below cost.
If a company reissues treasury stock above its cost, does the excess increase net income?
No. Under the cost method, the company removes treasury stock at its recorded cost and credits the excess proceeds to APIC from treasury stock.
How do I use normal balances when the answer choices are all journal entries?
Ignore the option wording at first and classify the accounts yourself. Then compare your expected direction with each option.
When does cash received from a customer become unearned revenue instead of revenue?
Cash received before the company has performed the promised service is generally recorded as a liability. Revenue is recognized as the performance obligation is satisfied.
How should I interpret a bank debit memo when recording the company's journal entry?
Read the bank memo from the company's perspective. A bank debit memo means the bank reduced the customer's deposit balance, so the company's cash decreased.
Why should I identify accounts before doing the math in a CPA transaction question?
The account classification tells you what the number means. A cash receipt could be revenue, unearned revenue, a loan, owner investment, or collection of a receivable.
What is the difference between an individual CPA license and a CPA firm permit?
An individual CPA license authorizes a person to use the CPA designation. A CPA firm permit applies to the entity that holds itself out as a CPA firm.
Is listing a CPA license on LinkedIn the same as offering CPA services?
Not always. Listing a CPA license as a personal credential may be different from presenting yourself as offering CPA services through a particular employer.
What does holding out mean in CPA ethics questions?
Holding out means representing to the public that you are a CPA, a CPA firm, or offering CPA services.
Can I put CPA in my employer email signature if my employer is not a CPA firm?
It depends on state board rules, your license status, the employer's status, and what the signature implies.
What is a good review note response?
A good review note response explains what changed and where the reviewer can verify it.
How should I document a linked workbook?
Document a linked workbook by retaining the source file or export, naming the linked range, showing the extraction date and period, and reconciling the linked data to a source total.
Why is hardcoding risky in a workpaper?
Hardcoding is risky when it hides the source of a number or overwrites calculation logic without explanation.
What makes a tax workpaper reviewer-ready?
A reviewer-ready tax workpaper lets another person follow the number from source data to calculation to conclusion.
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