Deck 4: Employee Compensation

Question 1

_____ 16.A single employee who is not covered by an employer's retirement plan may always contribute at least $5,000 of earned income to his or her IR
a.

Answer 1

True

Question 2

_____ 5.A sole proprietor never has to pay employment taxes on income earned by any of his or her children who work for the business.

Answer 2

False

Question 3

Which of the following statements is correct?

A)All FICA taxes are paid by the employer.
B)The employee pays one-half of the FUTA tax.
C)The employer pays the FUTA tax and the employer's share of the FICA tax.
D)The employee pays the FUTA tax and the employee's share of the FICA tax.

Answer 3

B

Question 4

_____ 12.An employee who receives an incentive stock option normally will recognize no income until the stock acquired with the option is sold.

Question 5

_____ 8.If a health plan is self-insured,highly-compensated employees are not affected by the nondiscrimination rules.

Question 6

_____ 2.An independent contractor pays self-employment taxes instead of FICA taxes.

Question 7

_____ 17.A taxpayer must work out of the country for a complete tax year,or he or she will not be eligible for the foreign earned income exclusion.

Question 8

Which of the following is not a reason for a business to prefer to hire an independent contractor rather than an employee?

A)The independent contractor does not participate in company fringe benefits.
B)The company does not have to pay FICA taxes on the amounts paid to the independent contractor.
C)The company does not have to supply a workplace or tools to the independent contractor.
D)The company only has to pay FUTA on the independent contractor's wages.

Question 9

_____ 11.If an employer insists that an employee move from New York to California,all direct and indirect costs incurred by the taxpayer and paid by the employer would result in no income to the employee.

Question 10

_____ 15.In a defined benefit retirement plan,the employee bears the financial risk for the plan investments.

Question 11

Taxable compensation received from a business does not include:

A)The employee's share of FICA taxes
B)The employer's share of FICA taxes
C)Bonuses paid to the employee
D)Reimbursements for personal expenses

Question 12

_____ 1.Employees are subject to and employers withhold FICA and FUTA taxes.

Question 13

_____ 6.A rational taxpayer in the 25% tax bracket who wants health insurance would prefer the employer pay the $5,000 premium for this health insurance rather than receive a $5,000 increase in salary to purchase health insurance on his own.

Question 14

_____ 3.S corporations have an incentive to pay unusually low salaries to an employee-shareholder to avoid FICA taxes.

Question 15

_____ 14.Stock appreciation rights allow an employee to benefit from an increase in the value of the employer's stock without actually purchasing the stock.

Question 16

_____ 10.An employee holiday party would be a tax-exempt de minimis fringe benefit.

Question 17

_____ 13.An employee who receives a nonqualified stock option recognizes income when the option is received and when it is exercised regardless of the strike price.

Question 18

Which of the following is a reason a person would prefer to be an independent contractor?

A)An independent contractor pays only 7.65 percent FICA tax.
B)An independent contractor can deduct expenses directly from business income.
C)An independent contractor can deduct his or her health insurance directly from business income.
D)An independent contractor can participate in the retirement plan of the business for which he or she is performing work.

Question 19

_____ 4.Employers must withhold the Medicare surtax on any employee who has wages or other compensation (subject to FICA taxes)exceeding $150,000.

Question 20

_____ 9.As long as the plan is nondiscriminatory,any life insurance provided employees as a fringe benefit is tax-exempt.

Question 21

What is a phantom stock plan?

A)A purchase of stock by an unnamed party.
B)A cash payment equal to the stock's increase in fair market value over the prior year.
C)A stock option that is given to only a few employees.
D)Employee compensation hypothetically invested in stock for a period of time after which the employee receives the fair market value of the stock.

Question 22

Which of the following is a working condition fringe benefit?

A)Flowers for an ill employee
B)A holiday cocktail party
C)A subscription to a professional journal
D)A bus pass

Question 23

Wilma is CEO of and owns 100 percent of WT Enterprises,a cash-basis,calendar-year corporation.The company has always been profitable but over the last five years Wilma's salary has increased from over $400,000 per year to over $1,000,000 and it has failed to pay dividends.Which of the following will not occur if the IRS determines that $500,000 of her salary is unreasonable?

A)Wilma will pay an additional tax on the $500,000 recharacterized as dividend.
B)Wilma will be eligible for a refund of Medicare taxes.
C)WT will lose a $500,000 deduction for the recharacterized dividend.
D)WT will be eligible for a refund of a portion of FICA taxes paid.

Question 24

Which type of retirement plan would not be available to a corporation with 3,000 employees?

A)ESOP
B)401(k)
C)SIMPLE plan
D)Profit sharing plan

Question 25

Which of the following fringe benefits does not impose a limit on the amount eligible as a tax-free benefit?

A)A child and dependent care program
B)Group term life insurance premiums
C)Education assistance plan
D)Qualified moving expenses

Question 26

Qualified deferred compensation plans have the following characteristics except:

A)Taxation of earnings is postponed.
B)Employee taxation occurs when payment is received.
C)Employee contributions are made on an after-tax basis.
D)Employer deducts contributions when made.

Question 27

Which of the following would not be considered a de minimis fringe benefit?

A)A $10 Christmas bonus
B)A holiday turkey
C)A company picnic
D)Free morning coffee

Question 28

All of the following expenditures qualify for reimbursement under an educational reimbursement plan except:

A)Tuition
B)Private tutoring
C)Fees
D)Books

Question 29

George is allowed to buy fringe benefits equal to 10 percent of his annual salary of $75,000.Which of the following would be taxable if selected?

A)$4,000 health insurance premium
B)$5,000 of childcare under a dependent care program
C)$1,500 country club membership
D)Discount on company products equal to the gross profit percentage.

Question 30

Howard is a cash-basis,calendar-year taxpayer.He works for Clyde Corporation,an accrual-basis,calendar-year corporation.Clyde authorizes a $10,000 bonus for Howard on December 20,year 1.It pays the bonus on March 31 of year 2.Which of the following is correct?

A)Howard recognizes income in year 1 and Clyde takes a deduction in year 1.
B)Howard recognizes income in year 1 and Clyde takes a deduction in year 2.
C)Howard recognizes income in year 2 and Clyde takes a deduction in year 1.
D)Howard recognizes income in year 2 and Clyde takes a deduction in year 2.

Question 31

Which of the following is not taxable to an employee when paid for by the employer?

A)A $200 gift certificate given to each employee at Christmas
B)Personal use of a company automobile
C)Housing provided by the employer in lieu of a $400 housing allowance
D)$150 for a business related seminar

Question 32

Which type of retirement plan guarantees a specific amount of income for the person upon retirement?

A)Defined benefit plan
B)Defined contribution plan
C)401(k)plan
D)An ESOP

Question 33

Which of the following is a characteristic of an incentive stock option?

A)The issuer recognizes compensation expense if the strike price is below the stock's selling price when the option is granted.
B)The issuer recognizes a compensation deduction when the option is exercised.
C)The option holder recognizes compensation income when the option is exercised.
D)The option holder recognizes capital gain when the stock acquired with the option is sold.

Question 34

If an employee is reimbursed through an accountable plan which of the following is not true?

A)All reimbursements are included in income.
B)A reimbursement equal to the expense is not included in income.
C)A reimbursement in excess of expense is included in income.
D)Unreimbursed expenses are deductible as an itemized deduction.

Question 35

All of the following are retirement plans that can be offered by a corporation except:

A)401(k)
B)Keogh Plan
C)A SEP
D)Defined contribution plan

Question 36

Carol owns a small curio shop that is incorporated as an S corporation.Her three children,Sara,age 16,Mark,age 19,and Corey,age 22,all help in the shop.Which of the children's wages are subject to FICA taxes?

A)None of the wages are subject to FICA taxes.
B)Corey's wages only
C)Mark and Corey's wages only.
D)All their wages are subject to FICA taxes.

Question 37

Jan has a company car for both business and personal use.Which of the following statements is correct regarding the use of the car?

A)The company can never deduct full depreciation on the car because Jan uses it for personal trips.
B)The company only has to charge Jan 30 cents per mile for any of her personal mileage.
C)If the car cost less than $15,000,the company does not have to charge Jan anything for her personal use.
D)If Jan only uses the car for commuting to work,she has income equal to $1.50 per one-way trip.

Question 38

What are Susie's deductible moving expenses for 2013 if she spends $4,000 for packing and moving household goods,$1,200 to break the lease on her apartment,and $1,500 to store the household goods for 45 days? In April she drove her car 1,400 miles to her new home and spent $250 for motels and $80 for meals while traveling to the new home.

A)$4,586
B)$5,586
C)$6,166
D)$7,286

Question 39

What is the purpose of a per diem allowance?

A)Eliminate the substantiation requirement for business expenses.
B)Reduce the amount an employer must reimburse for employee business expenses.
C)Eliminate paper work for certain employee business expenses.
D)Reduce reimbursement disagreements between employer and employee.

Question 40

Which of the following is a taxable fringe benefit when paid by the employer?

A)On-premises exercise facilities
B)Whole life insurance policy premium
C)On-premises childcare
D)Employer subsidized meals

Question 41

Tom,a calendar-year taxpayer,worked in Kuwait from July 1,2012 through June 30,2013.He earned $80,000 in 2012 and $90,000 in 2013 while in Kuwait.Which of the following statements is true?

A)None of the income can be excluded in 2012 or 2013.
B)$48,800 can be excluded in both 2012 and in 2013.
C)No exclusion in 2012 but $90,000 can be excluded in 2013.
D)$48,800 can be excluded in 2013.

Question 42

Which one of the following employee benefits can a staff accountant exclude from income?

A)A single ticket to a Marlins game
B)Frequent commuting use of the employer's automobile
C)Membership in Bodyworks Athletic Club
D)All of the above

Question 43

Five years ago,Devin Corporation granted Laura nonqualified stock options to buy 1,000 shares of Devin stock at $22 per share exercisable for six years.At the date of grant,the stock was selling for $19 per share.Laura exercised the options this year when the market price was $28 per share.How much income must Laura recognize from the exercise of the options?

A)zero
B)$3,000
C)$6,000
D)$22,000
E)$28,000

Question 44

Which of the following are characteristics of a Roth IRA?
A)Most distributions made before age 59½ are subject to a 10 percent penalty tax.
B)There are no minimum distributions required for a Roth IR

A)
C)Neither is a characteristic.
D)Both are characteristics.

Question 45

What is the maximum deductible contribution that Erick (age 32 and single)can make in 2013 to an Individual Retirement Account(s)if he earns $61,000 and is not covered by an employer-sponsored retirement plan?
A)$6,500 ($5,500 plus an extra $1000 catch-up contribution)to a traditional IRA and zero to a Roth IR

A)
B)$5,500 to a traditional IRA but only $1,500 additional to a Roth IRA
C)$5,500 to a traditional IRA
D)$4,500 to a traditional IRA due to the income limitation

Question 46

Sara,a cash-basis,calendar-year taxpayer,worked overseas for the past three years and is eligible for the foreign earned income exclusion for the income earned from January 1 through January 31,2013 before she returned to the United States.She was paid $30,000 including bonuses for this month's work but she did not have to pay any foreign taxes on this income.What is her foreign earned income exclusion for 2013?

A)She has no exclusion,as she paid no foreign taxes.
B)$8,255
C)$30,000
D)$97,600

Question 47

Henry,age 45,is an employee of Argus Corporation.His fringe benefits for the current year included:
-$2,500 contributed by Argus to his qualified deferred compensation retirement plan.This year,the retirement plan earned $600 in interest and dividend income.Henry received no distributions from this plan
-A $100,000 face value group term life insurance policy for which Argus paid premiums of $650.Henry is a key employee and it is a discriminatory plan.
-The use of a company-owned automobile.The annual lease value of this car is $15,000.Henry used it 70% of the time (and miles)for personal use and 30% for business use.
-Free parking in the company parking lot (valued at $100 per month)
How much must Henry include in gross income?

A)zero
B)$10,590
C)$11,150
D)$11,190
E)$15,450

Question 48

The contribution limit for a defined contribution plan is:

A)$5,500
B)$17,500
C)$51,000
D)$205,000

Question 49

Manuel's employer provides him with $80,000 of group term life insurance coverage for the year at no cost.How much must Manuel include in income as a result of this benefit if he is 40 years old and is not considered a key employee?

A)0
B)$3
C)$8
D)$36
E)$96

Question 50

Pablo earns $65,000 from his regular job as a salesman and an additional $60,000 from his sole proprietorship in 2013.What is his self-employment tax?

A)$6,672
B)$7,646
C)$7,770]
D)$9,180,

Question 51

Susie worked as a counselor at a wilderness camp for inner city children for six weeks during the summer.Her weekly benefits included a $200 salary,lodging in a private cabin valued at $60,and meals in the camp dining facilities worth $70.Susie was required to be available at all times during the 6 week period in case of emergencies by her employer.How much must Susie include in her gross income?

A)0
B)$1,200
C)$1,560
D)$1,620
E)$1,980

Question 52

Which of the following are characteristics of a traditional IRA?

A)Most distributions made before age 59½ are subject to a 10 percent penalty tax.
B)A taxpayer must begin taking distributions from the IRA by age 75½.
C)Neither is a characteristic.
D)Both are characteristics.

Question 53

A taxpayer who is a bona fide resident of a foreign country for an entire tax year may:

A)Exclude up to $97,600 of earned income from gross income.
B)Take a foreign tax credit for foreign taxes paid on the foreign income.
C)Take a deduction for foreign taxes paid on foreign income.
D)Select any one of the above alternatives.

Question 54

Elizabeth received the following benefits from her employer this year:
-$5,000 year-end bonus for exceeding sales expectations
-$400 cash as a length-of-service award
-$2,400 for insurance premiums paid by her employer for a disability income policy
-$5,100 for tuition paid by her employer for courses not related to her job under an educational assistance plan
How much must Elizabeth include in gross income?

A)$5,000
B)$5,400
C)$10,100
D)$12,900

Question 55

Carl,age 44,wants to contribute the maximum allowed to a Roth IR a.He is single and his AGI is $116,000.How much can he contribute to the Roth IRA?

A)$5,500
B)$4,033
C)$2,000
D)$1467