Question 1

Which of the following statements regarding fringe benefits is false?

Accepted Answer

A)  The general rule is that an employee fringe benefit is taxable unless the benefit is specifically excluded from the employee's gross income. 
B)  Employers are not allowed to deduct the cost of nontaxable employee fringe benefits. 
C)  Nontaxable fringe benefits must be provided to employees on a nondiscriminatory basis. 
D)  None of these choices arefalse. 
A)  The general rule is that an employee fringe benefit is taxable unless the benefit is specifically excluded from the employee's gross income. 
B)  Employers are not allowed to deduct the cost of nontaxable employee fringe benefits. 
C)  Nontaxable fringe benefits must be provided to employees on a nondiscriminatory basis. 
D)  None of these choices arefalse.

Question 2

This year, Mrs. Pike's compensation from her corporate employer consisted of $325,000 current salary and $75,000 unfunded deferred compensation payable upon her retirement at age 66. Which of the following statements is true?

Accepted Answer

A)  This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $400,000 deduction. 
B)  This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $400,000 deduction. 
C)  This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $325,000 deduction. 
D)  This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $325,000 deduction. 
A)  This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $400,000 deduction. 
B)  This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $400,000 deduction. 
C)  This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $325,000 deduction. 
D)  This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $325,000 deduction.

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

New companies and those with volatile earnings and uncertain cash flows generally prefer defined-contribution plans to defined-benefit plans.

Accepted Answer

A) True 
 B)False

Question 5

Defined-contribution plans provide participants with a targeted retirement benefit, typically in the form of a monthly pension.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements concerning the client-independent contractor relationship is false?

Accepted Answer

A)  A client may only accept or reject the final results of the work of an independent contractor. 
B)  An independent contractor is entitled to all the fringe benefits offered to the client's employees. 
C)  At the end of each tax year, a client issues a Form 1099 to an independent contractor reporting the compensation paid during the year. 
D)  An independent contractor must pay both income tax and self-employment tax. 
A)  A client may only accept or reject the final results of the work of an independent contractor. 
B)  An independent contractor is entitled to all the fringe benefits offered to the client's employees. 
C)  At the end of each tax year, a client issues a Form 1099 to an independent contractor reporting the compensation paid during the year. 
D)  An independent contractor must pay both income tax and self-employment tax.

Question 7

Profit-sharing plans and employee stock ownership plans are examples of defined-benefit plans.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements concerning qualified retirement plans is false?

Accepted Answer

A)  Employer contributions to the plan are not included in the employees' gross income. 
B)  The plan is tax-exempt so that earnings can accumulate on a before-tax basis. 
C)  Employer contributions are deductible in the year of payment. 
D)  None of these choices arefalse. 
A)  Employer contributions to the plan are not included in the employees' gross income. 
B)  The plan is tax-exempt so that earnings can accumulate on a before-tax basis. 
C)  Employer contributions are deductible in the year of payment. 
D)  None of these choices arefalse.

Question 9

Any individual taxpayer who earns any amount of compensation or self-employment income can contribute $6,000 to a traditional IRA.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements concerning the employer-employee relationship is true?

Accepted Answer

A)  An employee has the right to direct and control how her duties are performed. 
B)  An employer generally sets the employee's work schedule. 
C)  At the end of each tax year, an employer issues a Form 1099 to each employee reporting the compensation paid during the year. 
D)  An employee must pay self-employment taxes. 
A)  An employee has the right to direct and control how her duties are performed. 
B)  An employer generally sets the employee's work schedule. 
C)  At the end of each tax year, an employer issues a Form 1099 to each employee reporting the compensation paid during the year. 
D)  An employee must pay self-employment taxes.

Question 11

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 12

Harold Biggs is provided with $200,000 coverage under his employer's group-term life insurance plan. Which of the following statements is true?

Accepted Answer

A)  The value of the cost of $50,000 coverage is included in Harold's gross income. 
B)  The value of the cost of $150,000 coverage is included in Harold's gross income. 
C)  The value of the cost of $200,000 coverage is included in Harold's gross income. 
D)  Harold's life insurance coverage is a nontaxable fringe benefit. 
A)  The value of the cost of $50,000 coverage is included in Harold's gross income. 
B)  The value of the cost of $150,000 coverage is included in Harold's gross income. 
C)  The value of the cost of $200,000 coverage is included in Harold's gross income. 
D)  Harold's life insurance coverage is a nontaxable fringe benefit.

Question 13

Mrs. Lee, age 70, withdrew $10,000 from her Roth IRA this year. Mrs. Lee opened this account in 2000. The balance in the account at year-end was $76,600, which included $50,000 of contributions. Compute the taxable portion of the $10,000 withdrawal.

Accepted Answer

A)  $0 
B)  $4,226 
C)  $5,774 
D)  $10,000 
A)  $0 
B)  $4,226 
C)  $5,774 
D)  $10,000

Question 14

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, 2020, 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, 2020, Ms. McPhee, who was still employed by Bema, sold all 600 shares for $26,000. What are the 2020 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 15

What is the maximum IRA contribution that Mr. Higgins can make under each of the following assumptions? He is age 22 and single. His only income is $14,000 of interest and dividends from a trust fund. He is age 30 and single. His only income is a $35,000 distributive share of ordinary business income from a partnership. He is age 60 and single. His only income is $44,000 wages from his job. He is 45 and files a joint return with his wife. His sole proprietorship generates an $8,200 loss, and his wife's salary is $50,000.

Accepted Answer

$0 contribution.$6,0

Question 16

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 qualified 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 qualified tax-exempt withdrawals from a Roth IRA. 
D)  High-income individuals are not allowed to contribute directly to a Roth IRA.

Question 17

Keogh plans allow self-employed individuals to save for retirement on a tax-deferred basis.

Accepted Answer

A) True 
 B)False

Question 18

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 19

This year, Jenko Inc., a calendar year taxpayer, issued 1,000 shares of its publicly traded stock as a bonus to its employee, Mrs. Leder. On the date of issuance, the stock's fair market value was $25,000, and Mrs. Leder's ownership rights in the stock were unrestricted. Which of the following statements is true?

Accepted Answer

A)  Mrs. Leder doesn't recognize income on receipt of the stock, and her tax basis in the stock is zero. 
B)  Mrs. Leder doesn't recognize income on receipt of the stock, and her tax basis in the stock is $25,000. 
C)  Mrs. Leder recognizes $25,000 of ordinary income on receipt of the stock, and her tax basis in the stock is $25,000. 
D)  None of these choices aretrue. 
A)  Mrs. Leder doesn't recognize income on receipt of the stock, and her tax basis in the stock is zero. 
B)  Mrs. Leder doesn't recognize income on receipt of the stock, and her tax basis in the stock is $25,000. 
C)  Mrs. Leder recognizes $25,000 of ordinary income on receipt of the stock, and her tax basis in the stock is $25,000. 
D)  None of these choices aretrue.

Question 20

Self-employed individuals have fewer opportunities than employees to underpay income and payroll taxes.

Accepted Answer

A) True 
 B)False

Which of the following statements regarding fringe benefits is false?

This year, Mrs. Pike's compensation from her corporate employer consisted of $325,000 current salary and $75,000 unfunded deferred compensation payable upon her retirement at age 66. Which of the following statements is true?

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

New companies and those with volatile earnings and uncertain cash flows generally prefer defined-contribution plans to defined-benefit plans.

Defined-contribution plans provide participants with a targeted retirement benefit, typically in the form of a monthly pension.

Which of the following statements concerning the client-independent contractor relationship is false?

Profit-sharing plans and employee stock ownership plans are examples of defined-benefit plans.

Which of the following statements concerning qualified retirement plans is false?

Any individual taxpayer who earns any amount of compensation or self-employment income can contribute $6,000 to a traditional IRA.

Which of the following statements concerning the employer-employee relationship is true?

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?

Harold Biggs is provided with $200,000 coverage under his employer's group-term life insurance plan. Which of the following statements is true?

Mrs. Lee, age 70, withdrew $10,000 from her Roth IRA this year. Mrs. Lee opened this account in 2000. The balance in the account at year-end was $76,600, which included $50,000 of contributions. Compute the taxable portion of the $10,000 withdrawal.

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

Keogh plans allow self-employed individuals to save for retirement on a tax-deferred basis.

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:

Self-employed individuals have fewer opportunities than employees to underpay income and payroll taxes.

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

Which of the following statements regarding fringe benefits is false?

This year, Mrs. Pike's compensation from her corporate employer consisted of $325,000 current salary and $75,000 unfunded deferred compensation payable upon her retirement at age 66. Which of the following statements is true?

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

New companies and those with volatile earnings and uncertain cash flows generally prefer defined-contribution plans to defined-benefit plans.

Defined-contribution plans provide participants with a targeted retirement benefit, typically in the form of a monthly pension.

Which of the following statements concerning the client-independent contractor relationship is false?

Profit-sharing plans and employee stock ownership plans are examples of defined-benefit plans.

Which of the following statements concerning qualified retirement plans is false?

Any individual taxpayer who earns any amount of compensation or self-employment income can contribute $6,000 to a traditional IRA.

Which of the following statements concerning the employer-employee relationship is true?

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?

Harold Biggs is provided with $200,000 coverage under his employer's group-term life insurance plan. Which of the following statements is true?

Mrs. Lee, age 70, withdrew $10,000 from her Roth IRA this year. Mrs. Lee opened this account in 2000. The balance in the account at year-end was $76,600, which included $50,000 of contributions. Compute the taxable portion of the $10,000 withdrawal.

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

Keogh plans allow self-employed individuals to save for retirement on a tax-deferred basis.

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:

Self-employed individuals have fewer opportunities than employees to underpay income and payroll taxes.

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