(1 of 20) If a business breaches a financial debt covenant (e.g., dropping below a required Debt Service Coverage Ratio of 1.25), how should the long-term portion of that debt be presented on the balance sheet?

A) Leave it as long-term debt until the bank formally calls the loan.

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B) Reclassify the entire long-term debt portion as a current liability.

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C) Move the debt to a shareholder equity distribution account.

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D) Expense the remaining unamortized balance directly to bad debt.

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(2 of 20) What is the correct accounting procedure for handling long-outstanding, uncleared vendor checks (stale checks) at year-end?

A) Void the check and reverse the amount back into the original expense account.

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B) Document attempts to contact the payee, and if uncollected, reclassify to a liability for state escheatment.

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C) Reclassify the uncleared check directly into "Ask My Accountant" or Suspense.

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D) Write off the balance to Bad Debt Expense immediately.

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(3 of 20) How should the disposal of a fixed asset (e.g., selling a delivery van above its net book value) be recorded on the books?

A) Remove the original cost of the asset and record the remaining balance in suspense.

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B) Remove both original cost and accumulated depreciation, recognizing the net difference as a gain or loss.

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C) Relieve both original cost and accumulated depreciation, recognizing any proceeds above net book value as a gain.

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D) Leave accumulated depreciation on the balance sheet and credit revenue for the full cash sale amount.

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(4 of 20) What standard should be applied when fully documenting year-end adjustments and reconciliation files?

A) The documentation must be clear enough that you personally remember it next month.

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B) An external auditor or due diligence team must be able to understand the entry years later without calling you.

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C) Documentation is only necessary if the client requests an audit review.

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D) The transaction memo only needs to state "Year-End True Up."

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(5 of 20) When presenting a significant variance to a client during the Executive Review Meeting (such as a gross margin drop), what is the advisor’s best approach?

A) Send the P&L via email and ask the client to review the variance on their own.

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B) Point out the margin drop and immediately ask the client why costs went up.

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C) Investigate the root cause beforehand and bring a concrete explanation and recommendation to the table.

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D) Adjust the gross margin calculation to match prior-year benchmarks before the meeting.

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(6 of 20) When flagging an event-based trigger like a loan refinancing mid-year, what documentation should be provided to the tax team?

A) Only an updated line item on the month-end balance sheet.

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B) A summary of the client’s local bank branches.

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C) The actual source document (e.g., the new loan agreement) along with a note on the effective date.

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D) A handwritten note asking tax to research the lender.

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(7 of 20) What three diagnostic questions help determine whether a situation calls for a real-time conversation between CAS, tax, and the client?

A) Is the client profitable? Is the tax team internal? Is it busy season?

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B) Was the expense over $10,000? Was it paid by credit card? Is there a receipt?

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C) Is it a completed fact or open decision? Does it require balancing tax strategy against operational reality? Does the client need to hear from both teams together?

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D) Who is the primary contact? How long has the client been with the firm? What software is being used?

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(8 of 20) What represents the primary value of the “Communication Triangle” (CAS, Tax, and Client together) during a major planning meeting?

A) It allows CAS to take over tax planning entirely.

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B) It prevents the tax team from seeing the general ledger detail.

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C) It ensures tax strategy aligns with operational and cash flow realities, catching potential issues before the client commits.

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D) It reduces the length of the meeting to under five minutes.

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(9 of 20) If a tax preparer expresses concern that bookkeeping entries appear incorrect, what is the professional protocol?

A) Point out the error to the client immediately during the next executive meeting.

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B) Ignore the tax team’s feedback and proceed with the close.

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C) Communicate directly with the CAS team first to resolve the issue professionally behind the scenes.

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D) Report the tax preparer to the state accounting board.

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(10 of 20) What action is recommended as an immediate first step to begin building a tax partnership rhythm?

A) Re-audit the entire previous year's tax return for every client.

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B) Pick one client, identify their tax preparer, and send an email to establish an initial standing conversation.

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C) Draft a formal 50-page legal agreement for all external tax preparers.

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D) Mandate that all clients switch to in-house tax preparation immediately.

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(11 of 20) When rolling forward book equity for a partnership, which of the following is true regarding current year net income?

A) It should be excluded from total equity until formal closing journal entries are posted at year end.

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B) It becomes part of total equity the moment it is earned.

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C) It only applies to C Corporation retained earnings calculations.

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D) It is tracked exclusively on Schedule K-1 Item L and ignored on the balance sheet.

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(12 of 20) What represents the bridge between tax basis capital (Schedule M-2) and book capital (Schedule L)?

A) Cumulative book-tax adjustments accumulated over the life of the business

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B) The total owner draws taken in the current year

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C) The sum of all cash-to-accrual conversions

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D) Section 179 bonus depreciation taken in the first year

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(13 of 20) Which of the following Adjusting Journal Entries (AJEs) sent by a tax preparer should be posted to a GAAP or accrual-basis client’s books?

A) Bonus depreciation entries used to accelerate tax deductions

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B) Permanent M-1 limitations, such as disallowed meals and entertainment expenses

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C) Prior-year tax true-ups adjusting the accrued liability account

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D) Tax-basis goodwill amortization differences

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(14 of 20) If a client maintains accrual-basis books but the external tax preparer requests cash-basis financials and your software cannot toggle cleanly:

A) You must absorb the extra work quietly without notifying the client.

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B) Converting accrual books to a cash tax basis is typically tax preparation work and may require a scope change order if performed by the accounting team.

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C) You should immediately change the client's accounting method to cash basis permanently.

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D) You should file Schedule M-3 instead of Schedule M-1.

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(15 of 20) According to the training, what makes a tie-out successful when a gap between the books and the filed return cannot be fully reconciled?

A) Forcing the internal books to match the tax return without asking questions.

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B) Ignoring any variance under $10,000.

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C) Clear documentation of the open question and direct outreach/investigation with the tax team.

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D) Deleting old journal entries to balance the accounts.

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Section 12 Test (Graded)

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