Question 1

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 2

An independent contractor is not entitled to the same fringe benefits as an employee.

Accepted Answer

A) True 
 B)False

Question 3

Eight years ago,Acnex Inc.granted Ms.Cardena a nonqualified option to purchase 1,000 shares of Acnex stock at $44 per share.On date of grant,the market price was $42 per share.This year,Ms.Cardena exercised the option when the market price was $75 per share.Which of the following statements is true?

Accepted Answer

A) Ms.Cardena recognizes $31,000 ordinary income,and Acnex is allowed a $31,000 deduction this year. 
B) Ms.Cardena recognizes $31,000 ordinary income,and Acnex is allowed a $44,000 deduction this year. 
C) Ms.Cardena recognizes $33,000 ordinary income,and Acnex is allowed a $33,000 deduction this year. 
D) Ms.Cardena recognizes $33,000 ordinary income,and Acnex is allowed a $44,000 deduction this year. 
A) Ms.Cardena recognizes $31,000 ordinary income,and Acnex is allowed a $31,000 deduction this year. 
B) Ms.Cardena recognizes $31,000 ordinary income,and Acnex is allowed a $44,000 deduction this year. 
C) Ms.Cardena recognizes $33,000 ordinary income,and Acnex is allowed a $33,000 deduction this year. 
D) Ms.Cardena recognizes $33,000 ordinary income,and Acnex is allowed a $44,000 deduction this year.

Question 4

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 5

Which of the following statements regarding employee versus independent contractor status is false?

Accepted Answer

A) The determination as to whether a worker is an employee or an independent contractor is based on a subjective set of guidelines. 
B) An employer has a financial incentive to classify a worker as an independent contractor instead of an employee. 
C) The IRS has a higher probability of collecting income and payroll taxes from an independent contractor than from an employee. 
D) If the IRS reclassifies a worker from independent contractor to employee,the employer can become liable for the employee's share of unpaid payroll taxes. 
A) The determination as to whether a worker is an employee or an independent contractor is based on a subjective set of guidelines. 
B) An employer has a financial incentive to classify a worker as an independent contractor instead of an employee. 
C) The IRS has a higher probability of collecting income and payroll taxes from an independent contractor than from an employee. 
D) If the IRS reclassifies a worker from independent contractor to employee,the employer can become liable for the employee's share of unpaid payroll taxes.

Question 6

Carl Meyer,age 56,terminated his employment with his corporate employer because he wanted to begin a second career as a freelance photographer.If Carl withdraws funds from his employer-sponsored qualified plan,he will pay the 10% premature withdrawal penalty.

Accepted Answer

A) True 
 B)False

Question 7

Mrs.Lee,age 70,withdrew $40,000 from her traditional IRA this year.The balance in the account at year-end was $96,600,which included $28,000 of nondeductible contributions.Compute the taxable portion of the $40,000 withdrawal.

Accepted Answer

A) $0 
B) $8,199 
C) $31,801 
D) $40,000 
A) $0 
B) $8,199 
C) $31,801 
D) $40,000

Question 8

Jason Inc.maintains a qualified profit-sharing plan for its employees.This year,Jason contributed $2,300 to Ms.Preston's profit-sharing account.Which of the following statements is true?

Accepted Answer

A) Jason can deduct the contribution,and Ms.Preston must include the contribution in her gross income. 
B) Jason can't deduct the contribution,but Ms.Preston must include the contribution in her gross income. 
C) Jason can deduct the contribution,but Ms.Preston does not include the contribution in her gross income. 
D) Jason can't deduct the contribution,and Ms.Preston does not include the contribution in her gross income. 
A) Jason can deduct the contribution,and Ms.Preston must include the contribution in her gross income. 
B) Jason can't deduct the contribution,but Ms.Preston must include the contribution in her gross income. 
C) Jason can deduct the contribution,but Ms.Preston does not include the contribution in her gross income. 
D) Jason can't deduct the contribution,and Ms.Preston does not include the contribution in her gross income.

Question 9

Employees who save for retirement through an employer-sponsored qualified plan never include the earnings on their savings in gross income.

Accepted Answer

A) True 
 B)False

Question 10

The classification of a worker as an employee or an independent contractor determines how much payroll tax a company must pay.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Ms.Knox,age 34 and single,has $125,800 AGI,$108,200 of which is compensation income.Compute her maximum contribution to her Roth IRA.

Accepted Answer

A) $0 
B) $2,640 
C) $2,860 
D) $5,500 
A) $0 
B) $2,640 
C) $2,860 
D) $5,500

Question 13

Ms.Jorland is a 30-year old single taxpayer.Her $3,760 AGI is the total of $7,940 interest and dividend income from a trust fund,$4,190 income from a rent property,and an $8,370 loss from a new business that she started this year.Compute Ms.Jorland's maximum IRA contribution.

Accepted Answer

A) $0 
B) $3,760 
C) $4,190 
D) $5,500 
A) $0 
B) $3,760 
C) $4,190 
D) $5,500

Question 14

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

Question 15

Employees typically recognize compensation income in the year in which they are granted stock options.

Accepted Answer

A) True 
 B)False

Question 16

Mr.Paul,age 73 and single,earned a $150,000 salary (AGI)as a university professor.He no longer participates in the university's qualified retirement plan.Which of the following is true?

Accepted Answer

A) Mr.Paul can make a $6,500 deductible contribution to a traditional IRA. 
B) Mr.Paul can make a $6,500 nondeductible contribution to a traditional IRA. 
C) Mr.Paul can make a $6,500 nondeductible contribution to a Roth IRA. 
D) Mr.Paul can't make an IRA contribution. 
A) Mr.Paul can make a $6,500 deductible contribution to a traditional IRA. 
B) Mr.Paul can make a $6,500 nondeductible contribution to a traditional IRA. 
C) Mr.Paul can make a $6,500 nondeductible contribution to a Roth IRA. 
D) Mr.Paul can't make an IRA contribution.

Question 17

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 18

Mr.Hazel,the principal executive officer of a publicly held corporation,received $2.5 million compensation this year.The compensation consisted of an $800,000 salary and a $1.7 million bonus because Mr.Hazel met a performance goal established by outside members of the board of directors.The corporation is allowed to deduct the entire amount of Mr.Hazel's compensation.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Which of the following statements regarding Keogh plans is false?

Accepted Answer

A) Keogh plans provide a tax-deferred retirement savings option for self-employed individuals. 
B) Keogh plans must be administered by an independent trustee. 
C) Keogh plans can be either defined-benefit or defined-contribution plans. 
D) A self-employed person with a Keogh plan is not required to provide retirement benefits to his or her employees through the plan. 
A) Keogh plans provide a tax-deferred retirement savings option for self-employed individuals. 
B) Keogh plans must be administered by an independent trustee. 
C) Keogh plans can be either defined-benefit or defined-contribution plans. 
D) A self-employed person with a Keogh plan is not required to provide retirement benefits to his or her employees through the plan.

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

An independent contractor is not entitled to the same fringe benefits as an employee.

Eight years ago,Acnex Inc.granted Ms.Cardena a nonqualified option to purchase 1,000 shares of Acnex stock at $44 per share.On date of grant,the market price was $42 per share.This year,Ms.Cardena exercised the option when the market price was $75 per share.Which of the following statements is true?

Which of the following statements regarding employee versus independent contractor status is false?

Carl Meyer,age 56,terminated his employment with his corporate employer because he wanted to begin a second career as a freelance photographer.If Carl withdraws funds from his employer-sponsored qualified plan,he will pay the 10% premature withdrawal penalty.

Mrs.Lee,age 70,withdrew $40,000 from her traditional IRA this year.The balance in the account at year-end was $96,600,which included $28,000 of nondeductible contributions.Compute the taxable portion of the $40,000 withdrawal.

Jason Inc.maintains a qualified profit-sharing plan for its employees.This year,Jason contributed $2,300 to Ms.Preston's profit-sharing account.Which of the following statements is true?

Employees who save for retirement through an employer-sponsored qualified plan never include the earnings on their savings in gross income.

The classification of a worker as an employee or an independent contractor determines how much payroll tax a company must pay.

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

Ms.Knox,age 34 and single,has $125,800 AGI,$108,200 of which is compensation income.Compute her maximum contribution to her Roth IRA.

Ms.Jorland is a 30-year old single taxpayer.Her $3,760 AGI is the total of $7,940 interest and dividend income from a trust fund,$4,190 income from a rent property,and an $8,370 loss from a new business that she started this year.Compute Ms.Jorland's maximum IRA contribution.

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

Employees typically recognize compensation income in the year in which they are granted stock options.

Mr.Paul,age 73 and single,earned a $150,000 salary (AGI)as a university professor.He no longer participates in the university's qualified retirement plan.Which of the following 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.

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:

Which of the following statements regarding Keogh plans is false?

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 concerning the employer-employee relationship is true?

An independent contractor is not entitled to the same fringe benefits as an employee.

Which of the following statements regarding employee versus independent contractor status is false?

Carl Meyer,age 56,terminated his employment with his corporate employer because he wanted to begin a second career as a freelance photographer.If Carl withdraws funds from his employer-sponsored qualified plan,he will pay the 10% premature withdrawal penalty.

Mrs.Lee,age 70,withdrew $40,000 from her traditional IRA this year.The balance in the account at year-end was $96,600,which included $28,000 of nondeductible contributions.Compute the taxable portion of the $40,000 withdrawal.

Jason Inc.maintains a qualified profit-sharing plan for its employees.This year,Jason contributed $2,300 to Ms.Preston's profit-sharing account.Which of the following statements is true?

Employees who save for retirement through an employer-sponsored qualified plan never include the earnings on their savings in gross income.

The classification of a worker as an employee or an independent contractor determines how much payroll tax a company must pay.

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

Ms.Knox,age 34 and single,has $125,800 AGI,$108,200 of which is compensation income.Compute her maximum contribution to her Roth IRA.

Ms.Jorland is a 30-year old single taxpayer.Her $3,760 AGI is the total of $7,940 interest and dividend income from a trust fund,$4,190 income from a rent property,and an $8,370 loss from a new business that she started this year.Compute Ms.Jorland's maximum IRA contribution.

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

Employees typically recognize compensation income in the year in which they are granted stock options.

Mr.Paul,age 73 and single,earned a $150,000 salary (AGI)as a university professor.He no longer participates in the university's qualified retirement plan.Which of the following 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.

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:

Which of the following statements regarding Keogh plans is false?

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