An individual client asks a CPA to determine whether the client is solvent for f

Question

An individual client asks a CPA to determine whether the client is solvent for federal tax purposes. The client has assets consisting of cash and marketable securities with a basis of $250,000 and a fair market value of $155,000. The client has liabilities of $175,000, which include $130,000 of nondischargeable liabilities under the Bankruptcy Code. Which of the following statements is correct

Possible Answers:

he client is insolvent since the client's liabilities exceed the fair market value of the client's assets by $20,000

The CPA is unable to determine whether the client is solvent or insolvent because the CPA is not an accredited appraiser

The client is solvent because the fair market value of the client's assets exceeds the client's nondischargeable debt by $25,000

The client is solvent because the basis of the client's assets totals $250,000 and exceeds the client's liabilities by $75,000

Explanation / Answer

First option is correct (The client is insolvent since the client's liabilities exceed the fair market value of the client's assets by $20,000).

Explanation:

Solvency is based on FMV of all the assets less the value of all the liabilities= 155000-175000=$-20,000. Client is insolvent as the value is negative. Rest all answers are incorrect.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.