Question 1

Ms.Knox,age 34 and single,has $127,800 AGI,$108,200 of which is compensation income.Compute her maximum contribution to her Roth IRA.

Accepted Answer

A) $0 
B) $3,678 
C) $2,322 
D) $6,000 
A) $0 
B) $3,678 
C) $2,322 
D) $6,000

Question 2

Tony's marginal income tax rate is 24%,and he pays FICA tax on his entire salary (7.65%).Tony's employer offered him a choice between $5,000 additional salary or a nontaxable fringe benefit.Tony would have to pay $3,600 to purchase the benefit directly.Which of the following statements is true (answers rounded to the nearest whole dollar)?

Accepted Answer

A) The fringe benefit and the additional salary have the same after-tax value. 
B) The fringe benefit is worth $182 more than the additional salary. 
C) The additional salary is worth $1,600 more than the fringe benefit. 
D) None of the above is true. 
A) The fringe benefit and the additional salary have the same after-tax value. 
B) The fringe benefit is worth $182 more than the additional salary. 
C) The additional salary is worth $1,600 more than the fringe benefit. 
D) None of the above is true.

Question 3

Both traditional IRAs and Roth IRAs are tax-exempt accounts.

Accepted Answer

A) True 
 B)False

Question 4

Six years ago,Linus Corporation granted Pauline a nonqualified option to purchase 5,000 shares of Linus stock for $13 per share.On date of grant,the market price was $11 per share.Last year,Pauline exercised the option when the market price was $47 per share.This year,she sold the stock for $40 per share.Compute Pauline's gain or loss recognized on sale.

Accepted Answer

A) $135,000 gain 
B) $10,000 loss 
C) $35,000 loss 
D) No gain or loss on sale 
A) $135,000 gain 
B) $10,000 loss 
C) $35,000 loss 
D) No gain or loss on sale

Question 5

Mrs.Connelly,a self-employed individual,maintains a defined-contribution Keogh plan.Regardless of the amount of her self-employment income,Mrs.Connelly may contribute $56,000 to the Keogh plan in 2019.

Accepted Answer

A) True 
 B)False

Question 6

Six years ago,Linus Corporation granted Pauline an incentive stock option (ISO)to purchase 5,000 shares of Linus stock for $13 per share.On date of grant,the market price was $11 per share.Last year,Pauline exercised the ISO when the market price was $47 per share.This year,she sold the stock for $40 per share.Compute Pauline's gain or loss recognized on sale.

Accepted Answer

A) $135,000 gain 
B) $10,000 loss 
C) $35,000 loss 
D) No gain or loss on sale 
A) $135,000 gain 
B) $10,000 loss 
C) $35,000 loss 
D) No gain or loss on sale

Question 7

Which of the following statements regarding a Roth IRA is false?

Accepted Answer

A) Contributions to a Roth IRA are nondeductible. 
B) A Roth IRA is tax exempt. 
C) Individuals of any age can make tax-exempt withdrawals from a Roth IRA. 
D) High-income individuals are not allowed to contribute directly to a Roth IRA. 
A) Contributions to a Roth IRA are nondeductible. 
B) A Roth IRA is tax exempt. 
C) Individuals of any age can make tax-exempt withdrawals from a Roth IRA. 
D) High-income individuals are not allowed to contribute directly to a Roth IRA.

Question 8

Which of the following statements regarding the tax consequences of employee wages is false?

Accepted Answer

A) Cash basis employees must report wages in the year payment is actually or constructively received. 
B) Employees may elect whether or not their employer withholds income and payroll taxes from their wages. 
C) Whether wages are currently deductible by the employer depends on the type of services rendered by the employee. 
D) Wages paid to business employees are either deductible by the employer or treated as a capitalized cost. 
A) Cash basis employees must report wages in the year payment is actually or constructively received. 
B) Employees may elect whether or not their employer withholds income and payroll taxes from their wages. 
C) Whether wages are currently deductible by the employer depends on the type of services rendered by the employee. 
D) Wages paid to business employees are either deductible by the employer or treated as a capitalized cost.

Question 9

In 2011,Mr.Delgado exercised an option to purchase 1,000 shares of his employer's stock for $29 per share when the market price was $65 per share.This year,Mr.Delgado sold the stock for $80 per share.Which of the following statements is false?

Accepted Answer

A) If the option was an ISO,Mr.Delgado recognized a $51,000 gain on sale. 
B) If the option was nonqualified,Mr.Delgado recognized a $15,000 gain on sale. 
C) If the option was an ISO,Mr.Delgado has a $36,000 AMT preference item this year. 
D) None of the above is false. 
A) If the option was an ISO,Mr.Delgado recognized a $51,000 gain on sale. 
B) If the option was nonqualified,Mr.Delgado recognized a $15,000 gain on sale. 
C) If the option was an ISO,Mr.Delgado has a $36,000 AMT preference item this year. 
D) None of the above is false.

Question 10

A sole proprietor in the 37% tax bracket pays her 16-year-old son a reasonable salary of $14,000 for services performed for the proprietorship.Compute the family's tax savings if the son has no other income and takes a $12,200 standard deduction.

Accepted Answer

A) $5,000 
B) $5,180 
C) $4,440 
D) None of the above 
A) $5,000 
B) $5,180 
C) $4,440 
D) None of the above

Question 11

This year,Nilo Inc.granted incentive stock options (ISO)to 230 employees.For financial statement purposes,Nilo recorded a $179,200 expense for the estimated value of the ISOs.As a result of this transaction,Nilo has a:

Accepted Answer

A) Temporary favorable book/tax difference 
B) Temporary unfavorable book/tax difference 
C) Permanent favorable book/tax difference 
D) Permanent unfavorable book/tax difference 
A) Temporary favorable book/tax difference 
B) Temporary unfavorable book/tax difference 
C) Permanent favorable book/tax difference 
D) Permanent unfavorable book/tax difference

Question 12

Nonqualified deferred compensation plans are prohibited from discriminating in favor of highly compensated employees.

Accepted Answer

A) True 
 B)False

Question 13

An employee receives $110,000 of group term life insurance coverage per year.The cost of this coverage to his employer is $90.The cost based on the IRS's uniform premium table is $1.08 per year per $1,000 of coverage.What amount is taxable to the employee?

Accepted Answer

A) $64.80 
B) $54.00 
C) $90.00 
D) $118.80 
A) $64.80 
B) $54.00 
C) $90.00 
D) $118.80

Question 14

A cafeteria plan allows employees to select between a variety of nontaxable fringe benefits or taxable cash compensation.

Accepted Answer

A) True 
 B)False

Question 15

Mr.and Mrs.Alexander,ages 43 and 44,each earn substantial salaries but do not participate in any type of employer-sponsored qualified retirement plan.Which of the following is true?

Accepted Answer

A) The couple can each contribute $6,000 to a traditional IRA and take an $12,000 itemized deduction on their joint Form 1040. 
B) The couple can each contribute $6,000 to a traditional IRA and take an $12,000 above-the-line deduction on their joint Form 1040. 
C) The couple can each contribute $3,000 to a traditional IRA and take a $6,000 above-the-line deduction on their joint Form 1040. 
D) The couple can each contribute $3,000 to a traditional IRA and take a $6,000 itemized deduction on their joint Form 1040. 
A) The couple can each contribute $6,000 to a traditional IRA and take an $12,000 itemized deduction on their joint Form 1040. 
B) The couple can each contribute $6,000 to a traditional IRA and take an $12,000 above-the-line deduction on their joint Form 1040. 
C) The couple can each contribute $3,000 to a traditional IRA and take a $6,000 above-the-line deduction on their joint Form 1040. 
D) The couple can each contribute $3,000 to a traditional IRA and take a $6,000 itemized deduction on their joint Form 1040.

Question 16

An S corporation generated $160,000 ordinary taxable income this year.The shareholders must pay both income and self-employment tax on their pro rata shares of this income.

Accepted Answer

A) True 
 B)False

Question 17

Unreimbursed moving expenses are an itemized deduction.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements comparing traditional and Roth IRAs is false?

Accepted Answer

A) For a 57-year old individual,the maximum allowable contribution to either type of IRA is $7,000. 
B) Contributions to traditional IRAs may be deductible; contributions to Roth IRAs are nondeductible. 
C) Individuals who have reached age 70½ must begin liquidating either type of IRA. 
D) Individuals may have to pay a premature withdrawal penalty from either type of IRA. 
A) For a 57-year old individual,the maximum allowable contribution to either type of IRA is $7,000. 
B) Contributions to traditional IRAs may be deductible; contributions to Roth IRAs are nondeductible. 
C) Individuals who have reached age 70½ must begin liquidating either type of IRA. 
D) Individuals may have to pay a premature withdrawal penalty from either type of IRA.

Question 19

On March 1,2016,Bema Inc.issued 600 shares of its publicly traded stock as compensation to its employee,Ms.McPhee.On date of issuance,the stock's fair market value was $12,000.Under the terms of her employment contract,Ms.McPhee couldn't dispose of the stock before July 1,2019,and if she terminated her employment with Bema before that date,she had to forfeit the stock back to Bema.Ms.McPhee made a timely election in 2016 to accelerate income recognition with respect to the 600 shares of restricted stock.On July 1,2019,Ms.McPhee,who was still employed by Bema,sold all 600 shares for $26,000.What are the 2019 tax consequences to Ms.McPhee?

Accepted Answer

A) She recognizes $26,000 ordinary income and zero capital gain on sale of the stock. 
B) She recognizes zero ordinary income and $14,000 capital gain on sale of the stock. 
C) She recognizes zero ordinary income and $26,000 capital gain on sale of the stock. 
D) She recognizes $12,000 ordinary income and $14,000 capital gain in sale of the stock. 
A) She recognizes $26,000 ordinary income and zero capital gain on sale of the stock. 
B) She recognizes zero ordinary income and $14,000 capital gain on sale of the stock. 
C) She recognizes zero ordinary income and $26,000 capital gain on sale of the stock. 
D) She recognizes $12,000 ordinary income and $14,000 capital gain in sale of the stock.

Question 20

Which of the following is not a factor considered by the courts when evaluating the reasonableness of an employee's compensation?

Accepted Answer

A) The number of hours worked and the duties performed by the employee. 
B) The amount of compensation paid by other corporate employers in the same line of business to unrelated employees performing the same or similar services. 
C) The employee's education and years of experience. 
D) All of the above factors are considered. 
A) The number of hours worked and the duties performed by the employee. 
B) The amount of compensation paid by other corporate employers in the same line of business to unrelated employees performing the same or similar services. 
C) The employee's education and years of experience. 
D) All of the above factors are considered.

Ms.Knox,age 34 and single,has $127,800 AGI,$108,200 of which is compensation income.Compute her maximum contribution to her Roth IRA.

Both traditional IRAs and Roth IRAs are tax-exempt accounts.

Mrs.Connelly,a self-employed individual,maintains a defined-contribution Keogh plan.Regardless of the amount of her self-employment income,Mrs.Connelly may contribute $56,000 to the Keogh plan in 2019.

Which of the following statements regarding a Roth IRA is false?

Which of the following statements regarding the tax consequences of employee wages is false?

In 2011,Mr.Delgado exercised an option to purchase 1,000 shares of his employer's stock for $29 per share when the market price was $65 per share.This year,Mr.Delgado sold the stock for $80 per share.Which of the following statements is false?

A sole proprietor in the 37% tax bracket pays her 16-year-old son a reasonable salary of $14,000 for services performed for the proprietorship.Compute the family's tax savings if the son has no other income and takes a $12,200 standard deduction.

This year,Nilo Inc.granted incentive stock options (ISO)to 230 employees.For financial statement purposes,Nilo recorded a $179,200 expense for the estimated value of the ISOs.As a result of this transaction,Nilo has a:

Nonqualified deferred compensation plans are prohibited from discriminating in favor of highly compensated employees.

An employee receives $110,000 of group term life insurance coverage per year.The cost of this coverage to his employer is $90.The cost based on the IRS's uniform premium table is $1.08 per year per $1,000 of coverage.What amount is taxable to the employee?

A cafeteria plan allows employees to select between a variety of nontaxable fringe benefits or taxable cash compensation.

Mr.and Mrs.Alexander,ages 43 and 44,each earn substantial salaries but do not participate in any type of employer-sponsored qualified retirement plan.Which of the following is true?

An S corporation generated $160,000 ordinary taxable income this year.The shareholders must pay both income and self-employment tax on their pro rata shares of this income.

Unreimbursed moving expenses are an itemized deduction.

Which of the following statements comparing traditional and Roth IRAs is false?

Which of the following is not a factor considered by the courts when evaluating the reasonableness of an employee's compensation?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 15: Compensation and Retirement Planning

Ms.Knox,age 34 and single,has $127,800 AGI,$108,200 of which is compensation income.Compute her maximum contribution to her Roth IRA.

Both traditional IRAs and Roth IRAs are tax-exempt accounts.

Mrs.Connelly,a self-employed individual,maintains a defined-contribution Keogh plan.Regardless of the amount of her self-employment income,Mrs.Connelly may contribute $56,000 to the Keogh plan in 2019.

Which of the following statements regarding a Roth IRA is false?

Which of the following statements regarding the tax consequences of employee wages is false?

In 2011,Mr.Delgado exercised an option to purchase 1,000 shares of his employer's stock for $29 per share when the market price was $65 per share.This year,Mr.Delgado sold the stock for $80 per share.Which of the following statements is false?

A sole proprietor in the 37% tax bracket pays her 16-year-old son a reasonable salary of $14,000 for services performed for the proprietorship.Compute the family's tax savings if the son has no other income and takes a $12,200 standard deduction.

This year,Nilo Inc.granted incentive stock options (ISO)to 230 employees.For financial statement purposes,Nilo recorded a $179,200 expense for the estimated value of the ISOs.As a result of this transaction,Nilo has a:

Nonqualified deferred compensation plans are prohibited from discriminating in favor of highly compensated employees.

An employee receives $110,000 of group term life insurance coverage per year.The cost of this coverage to his employer is $90.The cost based on the IRS's uniform premium table is $1.08 per year per $1,000 of coverage.What amount is taxable to the employee?

A cafeteria plan allows employees to select between a variety of nontaxable fringe benefits or taxable cash compensation.

Mr.and Mrs.Alexander,ages 43 and 44,each earn substantial salaries but do not participate in any type of employer-sponsored qualified retirement plan.Which of the following is true?

An S corporation generated $160,000 ordinary taxable income this year.The shareholders must pay both income and self-employment tax on their pro rata shares of this income.

Unreimbursed moving expenses are an itemized deduction.

Which of the following statements comparing traditional and Roth IRAs is false?

Which of the following is not a factor considered by the courts when evaluating the reasonableness of an employee's compensation?

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, partnerships, llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters