Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Dargo Inc., a calendar year corporation, accrued a $75,000 year-end bonus payable to its CEO in 2015. Dargo and the CEO are not related parties. Dargo paid the bonus to the CEO on February 8, 2016. Dargo can deduct the bonus in 2015.

Accepted Answer

A) True 
 B)False

Question 3

A shareholder-employee of an S corporation prefers to receive a greater salary rather than a greater pro-rata share of corporate taxable income.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

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 7

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 8

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 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, 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.

Question 9

Six years ago, HOPCO granted Lin Sing an incentive stock option (ISO) to purchase 1,000 shares of HOPCO stock for $55 per share. On date of grant, the market price was $50 per share. This year, Lin Sing exercised the ISO when the market price was $64 per share. How much ordinary income does she recognize because of the exercise?

Accepted Answer

A)  $0 
B)  $5,000 
C)  $9,000 
D)  $14,000 
A)  $0 
B)  $5,000 
C)  $9,000 
D)  $14,000

Question 10

This year, Haven Corporation granted a nonqualified stock option to Olivia to buy 5,000 shares of Haven stock for $20 for five years. At date of grant, Haven stock was selling on the Nasdaq for $19 per share. For financial statement purposes, Haven recorded $16,500 compensation expense for the estimated value of the option. Five years after Haven granted the option to Olivia, she exercised it on a day when Haven stock was selling for $27 per share.
a. How much income must Olivia recognize in the year of exercise?
b. What is Haven's tax deduction in the year of exercise?
c. What is the effect of the exercise on Haven's book income and deferred taxes?

Accepted Answer

a. 5,000 * ($27 - $20) = $35,0

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

Louise, age 51, quit her job and received a $70,000 distribution from her employer-sponsored qualified retirement plan. She immediately contributed $50,000 to a rollover IRA and used the remaining $20,000 to purchase a car. Compute the tax cost of the distribution if Louise has a 33% marginal tax rate on ordinary income.

Accepted Answer

A)  $6,600 
B)  $8,600 
C)  $23,100 
D)  $30,100 
A)  $6,600 
B)  $8,600 
C)  $23,100 
D)  $30,100

Question 14

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 15

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 16

The value of employer-provided health insurance is excluded from the employee's gross income.

Accepted Answer

A) True 
 B)False

Question 17

Peter is a 20-year old college student who is claimed as a dependent on his parents' tax return. Peter's AGI consists of $12,000 interest and dividend income from a trust fund and $4,180 of wages from a part-time job. Compute Peter's maximum IRA contribution:

Accepted Answer

A)  $0 
B)  $3,000 
C)  $4,180 
D)  $5,500 
A)  $0 
B)  $3,000 
C)  $4,180 
D)  $5,500

Question 18

Largo Inc., a calendar year corporation, accrued a $45,000 year-end bonus payable to its CEO in 2015. Largo and the CEO are not related parties. Largo paid the bonus to the CEO on April 3, 2016. Dargo can deduct the bonus in 2015.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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.

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

Dargo Inc., a calendar year corporation, accrued a $75,000 year-end bonus payable to its CEO in 2015. Dargo and the CEO are not related parties. Dargo paid the bonus to the CEO on February 8, 2016. Dargo can deduct the bonus in 2015.

A shareholder-employee of an S corporation prefers to receive a greater salary rather than a greater pro-rata share of corporate taxable income.

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

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

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.

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?

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

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.

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.

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

The value of employer-provided health insurance is excluded from the employee's gross income.

Peter is a 20-year old college student who is claimed as a dependent on his parents' tax return. Peter's AGI consists of $12,000 interest and dividend income from a trust fund and $4,180 of wages from a part-time job. Compute Peter's maximum IRA contribution:

Largo Inc., a calendar year corporation, accrued a $45,000 year-end bonus payable to its CEO in 2015. Largo and the CEO are not related parties. Largo paid the bonus to the CEO on April 3, 2016. Dargo can deduct the bonus in 2015.

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?

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

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

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

Dargo Inc., a calendar year corporation, accrued a $75,000 year-end bonus payable to its CEO in 2015. Dargo and the CEO are not related parties. Dargo paid the bonus to the CEO on February 8, 2016. Dargo can deduct the bonus in 2015.

A shareholder-employee of an S corporation prefers to receive a greater salary rather than a greater pro-rata share of corporate taxable income.

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

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

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.

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?

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

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.

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.

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

The value of employer-provided health insurance is excluded from the employee's gross income.

Peter is a 20-year old college student who is claimed as a dependent on his parents' tax return. Peter's AGI consists of $12,000 interest and dividend income from a trust fund and $4,180 of wages from a part-time job. Compute Peter's maximum IRA contribution:

Largo Inc., a calendar year corporation, accrued a $45,000 year-end bonus payable to its CEO in 2015. Largo and the CEO are not related parties. Largo paid the bonus to the CEO on April 3, 2016. Dargo can deduct the bonus in 2015.

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?

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

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