Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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 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 3

Olan Inc. provides an on-site day care center free of charge to employees who have pre-school children. Employees who enroll their children may exclude the value of this fringe benefit from gross income.

Accepted Answer

A) True 
 B)False

Question 4

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 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

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 7

Wages paid by an employer to an employee who is the employer's child under age 18 are not subject to federal FICA and unemployment taxes.

Accepted Answer

A) True 
 B)False

Question 8

Section 401(k) plans allow employees to contribute a portion of their current wages or salary to a tax-exempt retirement account. However, the contributed portion is still taxable compensation to the employee.

Accepted Answer

A) True 
 B)False

Question 9

Mrs. Soon retired at age 68 and withdrew the entire $77,100 balance from an IRA to buy a sailboat. She opened this account in 1999. Which of the following statements is false?

Accepted Answer

A)  If the account is a Roth IRA, none of the withdrawal is taxable. 
B)  If the account is a traditional IRA to which Mrs. Soon made $32,000 nondeductible contributions, $45,100 of the withdrawal is taxable. 
C)  If the account is a traditional IRA funded entirely with deductible contributions, the entire $77,100 withdrawal is taxable. 
D)  None of the above is false. 
A)  If the account is a Roth IRA, none of the withdrawal is taxable. 
B)  If the account is a traditional IRA to which Mrs. Soon made $32,000 nondeductible contributions, $45,100 of the withdrawal is taxable. 
C)  If the account is a traditional IRA funded entirely with deductible contributions, the entire $77,100 withdrawal is taxable. 
D)  None of the above is 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

Tony's marginal income tax rate is 28%, 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 $3,400 to purchase the benefit directly. Which of the following statements is true?

Accepted Answer

A)  The fringe benefit and the additional salary have the same after-tax value. 
B)  The fringe benefit is worth $183 more than the additional salary. 
C)  The additional salary is worth $200 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 $183 more than the additional salary. 
C)  The additional salary is worth $200 more than the fringe benefit. 
D)  None of the above is true.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Largo Inc., a calendar year corporation, accrued a $45,000 year-end bonus payable to its CEO in 2016. Largo and the CEO are not related parties. Largo paid the bonus to the CEO on April 3, 2017. Dargo can deduct the bonus in 2016.

Accepted Answer

A) True 
 B)False

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

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 16

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 17

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 18

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 19

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 20

Mr. Smith, age 61, withdrew $12,000 from his traditional IRA this year. The balance in the account at year-end was $183,700, which included $40,000 of nondeductible contributions. Compute the taxable portion of the $12,000 withdrawal.

Accepted Answer

A)  $0 
B)  $2,453 
C)  $12,000 
D)  None of the above 
A)  $0 
B)  $2,453 
C)  $12,000 
D)  None of the above

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

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 a targeted amount of annual gross revenue. Ignoring payroll taxes, calculate the after-tax cost of this payment.

Olan Inc. provides an on-site day care center free of charge to employees who have pre-school children. Employees who enroll their children may exclude the value of this fringe benefit from gross income.

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 employee versus independent contractor status is false?

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?

Wages paid by an employer to an employee who is the employer's child under age 18 are not subject to federal FICA and unemployment taxes.

Section 401(k) plans allow employees to contribute a portion of their current wages or salary to a tax-exempt retirement account. However, the contributed portion is still taxable compensation to the employee.

Mrs. Soon retired at age 68 and withdrew the entire $77,100 balance from an IRA to buy a sailboat. She opened this account in 1999. Which of the following statements is false?

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

Tony's marginal income tax rate is 28%, 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 $3,400 to purchase the benefit directly. Which of the following statements is true?

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

Largo Inc., a calendar year corporation, accrued a $45,000 year-end bonus payable to its CEO in 2016. Largo and the CEO are not related parties. Largo paid the bonus to the CEO on April 3, 2017. Dargo can deduct the bonus in 2016.

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

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

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?

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

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.

Mr. Smith, age 61, withdrew $12,000 from his traditional IRA this year. The balance in the account at year-end was $183,700, which included $40,000 of nondeductible contributions. Compute the taxable portion of the $12,000 withdrawal.

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

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

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 a targeted amount of annual gross revenue. Ignoring payroll taxes, calculate the after-tax cost of this payment.

Olan Inc. provides an on-site day care center free of charge to employees who have pre-school children. Employees who enroll their children may exclude the value of this fringe benefit from gross income.

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 employee versus independent contractor status is false?

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?

Wages paid by an employer to an employee who is the employer's child under age 18 are not subject to federal FICA and unemployment taxes.

Section 401(k) plans allow employees to contribute a portion of their current wages or salary to a tax-exempt retirement account. However, the contributed portion is still taxable compensation to the employee.

Mrs. Soon retired at age 68 and withdrew the entire $77,100 balance from an IRA to buy a sailboat. She opened this account in 1999. Which of the following statements is false?

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

Tony's marginal income tax rate is 28%, 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 $3,400 to purchase the benefit directly. Which of the following statements is true?

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

Largo Inc., a calendar year corporation, accrued a $45,000 year-end bonus payable to its CEO in 2016. Largo and the CEO are not related parties. Largo paid the bonus to the CEO on April 3, 2017. Dargo can deduct the bonus in 2016.

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

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

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?

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

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.

Mr. Smith, age 61, withdrew $12,000 from his traditional IRA this year. The balance in the account at year-end was $183,700, which included $40,000 of nondeductible contributions. Compute the taxable portion of the $12,000 withdrawal.

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