Question 1

Traditional IRAs but not Roth IRAs are subject to a minimum distribution requirement after the owner reaches age 70½.

Accepted Answer

A) True 
 B)False

Question 2

Reimbursed employment-related business expenses have no net effect on the employee's taxable income.

Accepted Answer

A) True 
 B)False

Question 3

Mr.and Mrs.Owens moved from San Francisco,California,to Richmond,Virginia,so that Mrs.Owens could accept employment with Mega Corporation.As part of her employment contract,Mrs.Owens received a $10,000 moving allowance.What is the affect of this $10,000 cash receipt on the couple's AGI assuming that:
a.Their deductible moving expenses totaled $8,000?
b.Their deductible moving expenses totaled $11,000?

Accepted Answer

a.AGI increases by $2,000 ($10

Question 4

The IRS is less likely to raise the issue of reasonable compensation during the audit of a publicly held corporation than a closely held corporation.

Accepted Answer

A) True 
 B)False

Question 5

Lansing Corporation,a publicly held company with a 35% marginal tax rate,paid its CEO an annual salary of $1 million plus a bonus of $1.3 million.The bonus was based on a targeted amount of annual gross revenue.Ignoring payroll taxes,calculate the after-tax cost of this payment.

Accepted Answer

A) $2.3 million 
B) $1.495 million 
C) $1.95 million 
D) $0 
A) $2.3 million 
B) $1.495 million 
C) $1.95 million 
D) $0

Question 6

This year,Larry was awarded a bonus by his corporate employer that will be paid in five annual installments beginning in the year Larry retires.The employer's liability for the future payment is unfunded.Even though Larry earned the bonus this year,he does not recognize any current income.

Accepted Answer

A) True 
 B)False

Question 7

Mr.Sherman incurred $7,000 of employment-related business expenses.Which of the following statements is true?

Accepted Answer

A) If his employer reimbursed him for these expenses,Mr.Sherman must include the reimbursement in gross income. 
B) If his employer reimbursed him for $6,000 of the expenses,Mr.Sherman is allowed a $1,000 above-the-line deduction. 
C) If his employer reimbursed him for $6,000 of the expenses,Mr.Sherman is allowed a $1,000 itemized deduction not subject to the 2% AGI floor. 
D) If his employer reimbursed him for $6,000 of the expenses,Mr.Sherman is allowed a $1,000 miscellaneous itemized deduction. 
A) If his employer reimbursed him for these expenses,Mr.Sherman must include the reimbursement in gross income. 
B) If his employer reimbursed him for $6,000 of the expenses,Mr.Sherman is allowed a $1,000 above-the-line deduction. 
C) If his employer reimbursed him for $6,000 of the expenses,Mr.Sherman is allowed a $1,000 itemized deduction not subject to the 2% AGI floor. 
D) If his employer reimbursed him for $6,000 of the expenses,Mr.Sherman is allowed a $1,000 miscellaneous itemized deduction.

Question 8

Lana,an employee of Compton University,paid $1,500 for professional journal subscriptions and $1,000 of membership dues to academic organizations.These unreimbursed employment-related expenses are Lana's only miscellaneous itemized deduction.Which of the following statements is false?

Accepted Answer

A) If Lana's AGI is $136,000,none of the expenses are deductible. 
B) If Lana's AGI is $87,500,$750 of the expenses is deductible. 
C) If Lana's AGI is $42,000,$1,660 of the expenses is deductible. 
D) None of the statements is false. 
A) If Lana's AGI is $136,000,none of the expenses are deductible. 
B) If Lana's AGI is $87,500,$750 of the expenses is deductible. 
C) If Lana's AGI is $42,000,$1,660 of the expenses is deductible. 
D) None of the statements is false.

Question 9

Stock options are a form of compensation that requires a substantial cash outlay by the corporate employer.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 the above is false. 
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 the above is false.

Question 12

Qualified withdrawals from both traditional and Roth IRAs are tax-exempt.

Accepted Answer

A) True 
 B)False

Question 13

A Keogh plan for the benefit of a self-employed individual is considered a nonqualified retirement plan.

Accepted Answer

A) True 
 B)False

Question 14

In 2008,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 15

Wallace Corporation needs an additional worker on a multiyear project.It could hire an employee for a $30,000 annual salary.Alternatively,it could engage an independent contractor for a $35,000 annual fee.Which of the following is true?

Accepted Answer

A) Wallace must withhold payroll tax from the salary or the fee. 
B) Wallace must withhold federal and state income tax from the salary or the fee. 
C) Wallace must issue a Form W-2 to the employee or the independent contractor. 
D) None of the above is true. 
A) Wallace must withhold payroll tax from the salary or the fee. 
B) Wallace must withhold federal and state income tax from the salary or the fee. 
C) Wallace must issue a Form W-2 to the employee or the independent contractor. 
D) None of the above is true.

Question 16

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 17

In 2017,Amanda earned $70,000 self-employment income.She was allowed a $4,945 above-the line deduction for her SE tax.Compute Amanda's maximum contribution to her profit-sharing Keogh plan.

Accepted Answer

A) $13,011 
B) $12,022 
C) $65,055 
D) $54,000 
A) $13,011 
B) $12,022 
C) $65,055 
D) $54,000

Question 18

Self-employed individuals are allowed to deduct the cost of health insurance for themselves and their families only as an itemized deduction.

Accepted Answer

A) True 
 B)False

Question 19

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.

Question 20

Four years ago,Acnex Inc.granted Ms.Cardena an incentive stock option (ISO)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 ISO 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,but Acnex is allowed no deduction this year. 
C) Ms.Cardena recognizes no ordinary income,and Acnex is allowed no deduction this year. 
D) Ms.Cardena recognizes no ordinary income,but Acnex is allowed a $31,000 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,but Acnex is allowed no deduction this year. 
C) Ms.Cardena recognizes no ordinary income,and Acnex is allowed no deduction this year. 
D) Ms.Cardena recognizes no ordinary income,but Acnex is allowed a $31,000 deduction this year.

Traditional IRAs but not Roth IRAs are subject to a minimum distribution requirement after the owner reaches age 70½.

Reimbursed employment-related business expenses have no net effect on the employee's taxable income.

The IRS is less likely to raise the issue of reasonable compensation during the audit of a publicly held corporation than a closely held corporation.

Lansing Corporation,a publicly held company with a 35% marginal tax rate,paid its CEO an annual salary of $1 million plus a bonus of $1.3 million.The bonus was based on a targeted amount of annual gross revenue.Ignoring payroll taxes,calculate the after-tax cost of this payment.

This year,Larry was awarded a bonus by his corporate employer that will be paid in five annual installments beginning in the year Larry retires.The employer's liability for the future payment is unfunded.Even though Larry earned the bonus this year,he does not recognize any current income.

Mr.Sherman incurred $7,000 of employment-related business expenses.Which of the following statements is true?

Lana,an employee of Compton University,paid $1,500 for professional journal subscriptions and $1,000 of membership dues to academic organizations.These unreimbursed employment-related expenses are Lana's only miscellaneous itemized deduction.Which of the following statements is false?

Stock options are a form of compensation that requires a substantial cash outlay by the corporate employer.

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.

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

Qualified withdrawals from both traditional and Roth IRAs are tax-exempt.

A Keogh plan for the benefit of a self-employed individual is considered a nonqualified retirement plan.

In 2008,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?

Wallace Corporation needs an additional worker on a multiyear project.It could hire an employee for a $30,000 annual salary.Alternatively,it could engage an independent contractor for a $35,000 annual fee.Which of the following is true?

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

In 2017,Amanda earned $70,000 self-employment income.She was allowed a $4,945 above-the line deduction for her SE tax.Compute Amanda's maximum contribution to her profit-sharing Keogh plan.

Self-employed individuals are allowed to deduct the cost of health insurance for themselves and their families only as an itemized deduction.

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

Traditional IRAs but not Roth IRAs are subject to a minimum distribution requirement after the owner reaches age 70½.

Reimbursed employment-related business expenses have no net effect on the employee's taxable income.

The IRS is less likely to raise the issue of reasonable compensation during the audit of a publicly held corporation than a closely held corporation.

Lansing Corporation,a publicly held company with a 35% marginal tax rate,paid its CEO an annual salary of $1 million plus a bonus of $1.3 million.The bonus was based on a targeted amount of annual gross revenue.Ignoring payroll taxes,calculate the after-tax cost of this payment.

This year,Larry was awarded a bonus by his corporate employer that will be paid in five annual installments beginning in the year Larry retires.The employer's liability for the future payment is unfunded.Even though Larry earned the bonus this year,he does not recognize any current income.

Mr.Sherman incurred $7,000 of employment-related business expenses.Which of the following statements is true?

Lana,an employee of Compton University,paid $1,500 for professional journal subscriptions and $1,000 of membership dues to academic organizations.These unreimbursed employment-related expenses are Lana's only miscellaneous itemized deduction.Which of the following statements is false?

Stock options are a form of compensation that requires a substantial cash outlay by the corporate employer.

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.

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

Qualified withdrawals from both traditional and Roth IRAs are tax-exempt.

A Keogh plan for the benefit of a self-employed individual is considered a nonqualified retirement plan.

In 2008,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?

Wallace Corporation needs an additional worker on a multiyear project.It could hire an employee for a $30,000 annual salary.Alternatively,it could engage an independent contractor for a $35,000 annual fee.Which of the following is true?

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

In 2017,Amanda earned $70,000 self-employment income.She was allowed a $4,945 above-the line deduction for her SE tax.Compute Amanda's maximum contribution to her profit-sharing Keogh plan.

Self-employed individuals are allowed to deduct the cost of health insurance for themselves and their families only as an itemized deduction.

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