Question 1

A stock option is the right to purchase the stock of a corporate employer at a stated price for an indefinite period of time.

Accepted Answer

A) True 
 B)False

Question 2

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 $6,500. 
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 $6,500. 
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 3

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 4

Any individual taxpayer who earns any amount of compensation or self-employment income can contribute $5,500 to a traditional IRA.

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 $5,500 to a traditional IRA and take an $11,000 itemized deduction on their joint Form 1040. 
B)  The couple can each contribute $5,500 to a traditional IRA and take an $11,000 above-the-line deduction on their joint Form 1040. 
C)  The couple can each contribute $2,750 to a traditional IRA and take a $5,500 above-the-line deduction on their joint Form 1040. 
D)  The couple can each contribute $2,750 to a traditional IRA and take a $5,500 itemized deduction on their joint Form 1040. 
A)  The couple can each contribute $5,500 to a traditional IRA and take an $11,000 itemized deduction on their joint Form 1040. 
B)  The couple can each contribute $5,500 to a traditional IRA and take an $11,000 above-the-line deduction on their joint Form 1040. 
C)  The couple can each contribute $2,750 to a traditional IRA and take a $5,500 above-the-line deduction on their joint Form 1040. 
D)  The couple can each contribute $2,750 to a traditional IRA and take a $5,500 itemized deduction on their joint Form 1040.

Question 7

An employer is allowed to deduct the accrued expense for the employer's liability to pay nonqualified deferred compensation.

Accepted Answer

A) True 
 B)False

Question 8

Mr. Scott, age 46, quit his job with MNP Inc. and withdrew the $184,000 balance in his Section 401(k) plan. Mr. Scott immediately deposited the withdrawal in a new rollover Roth IRA with a local bank. Which of the following statements is false?

Accepted Answer

A)  Mr. Scott must include the $184,000 withdrawal in gross income. 
B)  Mr. Scott must pay a 10% premature withdrawal penalty. 
C)  Future withdrawals from the rollover Roth IRA will be nontaxable. 
D)  None of the statements is false. 
A)  Mr. Scott must include the $184,000 withdrawal in gross income. 
B)  Mr. Scott must pay a 10% premature withdrawal penalty. 
C)  Future withdrawals from the rollover Roth IRA will be nontaxable. 
D)  None of the statements is false.

Question 9

A Keogh plan maintained for the owner of an unincorporated business must cover all employees of the business on a nondiscriminatory basis.

Accepted Answer

A) True 
 B)False

Question 10

Mr. and Mrs. Pointer each contributed $1,800 to their traditional IRAs. Each spouse actively participates in an employer-sponsored qualified retirement plan. Compute the deductible IRA contribution on their joint return if their AGI before such deduction is $109,970.

Accepted Answer

A)  $3,600 
B)  $1,975 
C)  $1,625 
D)  $0 
A)  $3,600 
B)  $1,975 
C)  $1,625 
D)  $0

Question 11

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 12

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 $53,000 to the Keogh plan in 2016.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Mr. Thano, age 47, withdrew $22,000 from his employer-sponsored qualified retirement plan to pay for his daughter's wedding. Compute the tax cost of the withdrawal if Mr. Thano has a 28% marginal tax rate on ordinary income.

Accepted Answer

A)  $2,200 
B)  $6,160 
C)  $8,360 
D)  $11,000 
A)  $2,200 
B)  $6,160 
C)  $8,360 
D)  $11,000

Question 15

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 16

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 ($1

Question 17

Employers typically use nonqualified deferred compensation plans to provide additional retirement savings for rank-and-file employees.

Accepted Answer

A) True 
 B)False

Question 18

Lansing Corporation, a publicly held company with a 35% marginal tax rate, paid its CEO an annual salary of $2.3 million. 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 19

Unreimbursed moving expenses are a miscellaneous itemized deduction.

Accepted Answer

A) True 
 B)False

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.

A stock option is the right to purchase the stock of a corporate employer at a stated price for an indefinite period of time.

Which of the following statements comparing traditional and Roth IRAs 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?

Any individual taxpayer who earns any amount of compensation or self-employment income can contribute $5,500 to a traditional IRA.

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:

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 employer is allowed to deduct the accrued expense for the employer's liability to pay nonqualified deferred compensation.

Mr. Scott, age 46, quit his job with MNP Inc. and withdrew the $184,000 balance in his Section 401(k) plan. Mr. Scott immediately deposited the withdrawal in a new rollover Roth IRA with a local bank. Which of the following statements is false?

A Keogh plan maintained for the owner of an unincorporated business must cover all employees of the business on a nondiscriminatory basis.

Mr. and Mrs. Pointer each contributed $1,800 to their traditional IRAs. Each spouse actively participates in an employer-sponsored qualified retirement plan. Compute the deductible IRA contribution on their joint return if their AGI before such deduction is $109,970.

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

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 $53,000 to the Keogh plan in 2016.

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

Mr. Thano, age 47, withdrew $22,000 from his employer-sponsored qualified retirement plan to pay for his daughter's wedding. Compute the tax cost of the withdrawal if Mr. Thano has a 28% marginal tax rate on ordinary income.

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

Employers typically use nonqualified deferred compensation plans to provide additional retirement savings for rank-and-file employees.

Lansing Corporation, a publicly held company with a 35% marginal tax rate, paid its CEO an annual salary of $2.3 million. Ignoring payroll taxes, calculate the after-tax cost of this payment.

Unreimbursed moving expenses are a miscellaneous 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

A stock option is the right to purchase the stock of a corporate employer at a stated price for an indefinite period of time.

Which of the following statements comparing traditional and Roth IRAs 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?

Any individual taxpayer who earns any amount of compensation or self-employment income can contribute $5,500 to a traditional IRA.

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:

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 employer is allowed to deduct the accrued expense for the employer's liability to pay nonqualified deferred compensation.

Mr. Scott, age 46, quit his job with MNP Inc. and withdrew the $184,000 balance in his Section 401(k) plan. Mr. Scott immediately deposited the withdrawal in a new rollover Roth IRA with a local bank. Which of the following statements is false?

A Keogh plan maintained for the owner of an unincorporated business must cover all employees of the business on a nondiscriminatory basis.

Mr. and Mrs. Pointer each contributed $1,800 to their traditional IRAs. Each spouse actively participates in an employer-sponsored qualified retirement plan. Compute the deductible IRA contribution on their joint return if their AGI before such deduction is $109,970.

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

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 $53,000 to the Keogh plan in 2016.

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

Mr. Thano, age 47, withdrew $22,000 from his employer-sponsored qualified retirement plan to pay for his daughter's wedding. Compute the tax cost of the withdrawal if Mr. Thano has a 28% marginal tax rate on ordinary income.

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

Employers typically use nonqualified deferred compensation plans to provide additional retirement savings for rank-and-file employees.

Lansing Corporation, a publicly held company with a 35% marginal tax rate, paid its CEO an annual salary of $2.3 million. Ignoring payroll taxes, calculate the after-tax cost of this payment.

Unreimbursed moving expenses are a miscellaneous 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