Home Accents, Inc. is a closely held business headed by Mitch Franklin and his wife Maggie, both age fifty-four. Their children Ted and Tom, twins age thirty, want to buy out their father's interests when he retires or dies. As their financial advisor, you inform them that key employee life insurance on their father and their mother will

-stabilize the corporation financially at the death of a key employee.

-enable the business to continue contributing to employee benefit plans for surviving employees.

-allow the family to avoid all estate taxes.

-all of the above.

-only a and b.

only a and b

Question 2 2 / 2 pts In most types of split dollar plans, the employer's outlay is at all times fully secured. Correct! True False

true

Question 3 2 / 2 pts Common objectives of employer-provided life insurance include all of the following except -to offer life insurance protection at the lowest cost.

-to provide an employee incentive to increase company profitability.

-to retain executive leadership.

- to provide a means of business transfer.

-to provide an estate for beneficiaries of young employees.

to provide an employee incentive to increase company profitability.

Question 4 2 / 2 pts The numbering system for regulations is supposed to make them more accessible by including an internal reference to the -year the regulation went into effect.

-related IRS rulings.

-court case that created the ruling.

- individual who sponsored the ruling.

-underlying statutory provision.

underlying statutory provision.

Question 5 2 / 2 pts All of the following are disadvantages of split dollar life insurance, except

- the plan must remain in effect over ten years to maximize plan benefits.

-the employer must pay tax on the current cost of the life insurance.

-new tax law makes use of split dollar life insurance unfavorable.

-all of the above.

-a and c.

a and c.

Question 6 0 / 2 pts Cedar Woodwork, Inc. has group-term life coverage of $200,000 on the life of company executives in a nondiscriminatory plan. Which of the following is true?

-Premiums used to purchase the life insurance are tax-free income to the executives.

-Premiums used to purchase $100,000 of life insurance must be treated as ordinary income and taxed accordingly.

-Executives must count the entire premium used to purchase the life insurance policy.

-Premiums used to purchase $150,000 of life insurance must be treated as ordinary income and taxed accordingly.

-Premiums used to purchase $50,000 of life insurance must be treated as ordinary income and taxed accordingly.

Premiums used to purchase $150,000 of life insurance must be treated as ordinary income and taxed accordingly.

Question 7 2 / 2 pts Advantages of a group life insurance carve-out for executives include

-carving the executive group out of a group covered by group-term life insurance to form two life insurance contracts can reduce the possibility that either contract will be discriminatory.

-executives can have more coverage under a carve-out plan than under a group-term plan.

-premiums paid for life insurance coverage above $50,000 for executives are not considered taxable income if under a group life insurance carve-out.

-a and b.

-b and c.

a and b.

Question 8 2 / 2 pts Which type of split dollar arrangement has as its main purpose the reimbursement of the employer for its share of the premium outlay in the event of the employee's death or termination of the plan?

-level premium.

-cash value/death proceeds.

-endorsement method.

-collateral assignment.

-offset plan.

cash value/death proceeds.

Question 9 0 / 2 pts The IRS releases general guidance for taxpayers in You Answered

-Private Letter Rulings.

-Revenue Rulings.

-General Rulings.

-FSA rulings.

-Technical Advice Ruling.

-Revenue Rulings.

Question 10 2 / 2 pts Gemma Rose is seventy years old. Her employer recently started a benefits program that caters to younger employees. She thinks that the company is trying to make her quit before she can claim a substantial pension. She has asked you, her financial advisor for help. What resource should you use to brush up on statutory laws that might apply to Gemma's situation?

-the Americans with Disabilities Act of 1990.

-the Pension Benefit Guaranty Corporation (PBGC).

-the Civil Rights Act of 1964.

-the Age Discrimination in Employment Act of 1967, as amended. securities laws.

the Age Discrimination in Employment Act of 1967, as amended. securities laws

Question 11 2 / 2 pts Howard Bigwig has a DBO plan with his employer. Which of the following situations would cause Howard's death benefit to be included in Howard's estate?

-if Howard has the right to change the beneficiary.

-if the beneficiary is a revocable trust established by Howard who also retains the right to change terms of the trust.

-Howard has a controlling interest (greater than 50 percent shareholder) in the company.

-all of the above.

-only a and b.

all of the above.

Question 12 2 / 2 pts Which of the following is true regarding key employee life insurance? death proceeds of key employee life insurance are always tax free when paid to the corporation.

-key employee life insurance policies use term life insurance exclusively.

-there is no income tax to a key employee or his or her estate when the executive owns the policy.

-the employer may have to pay an accumulated earnings tax.

-key employee life insurance is not very useful in a closely held business.

the employer may have to pay an accumulated earnings tax.

Question 13 2 / 2 pts Generally, if the corporation has accumulated earnings in excess of $_____, then the further accumulation of income to pay life insurance premiums for key employees may expose the corporation to the accumlated earnings tax.

100,000.

150,000.

200,000.

250,000.

300,000.

250,000

Question 14 2 / 2 pts Halifax Publishing, Inc. used the endorsement method to arrange policy ownership for the three split dollar life insurance plans established for the company executives. The advantages of this arrangement for Halifax Publishing include all of the following except

-Halifax Publishing has greater control over the policy.

-Halifax Publishing receives a tax deduction for its share of the premium payments.

-this type of plan is simple for Halifax Publishing to install and administer.

-Halifax could use an existing key employee policy on the employees rather than having to issue a new policy.

-Halifax Publishing can avoid unfavorable consequences of having an arrangement deemed a loan under current regulations.

Halifax Publishing receives a tax deduction for its share of the premium payments.

Question 15 0 / 2 pts Bigalow Bucks failed to file an income tax return last year. Which of the following penalties could he face? Correct Answer

-5 percent of the underpayment per month, up to 25 percent.

-20 percent of the underpayment.

-75 percent of the underpayment.

-20 to 40 percent of the underpayment.

5 percent of the underpayment per month, up to 25 percent.

Question 16 2 / 2 pts Disadvantages of a DBO plan include all of the following, except

-entire benefit is taxed as ordinary benefit when received by beneficiary.

-keeping the death benefit out of the insured's gross estate requires careful and complex planning.

-ways of structuring the plan's benefit formula are quite limited. employer's tax deduction is delayed until funds are paid to a beneficiary.

-advance funding of the plan does not change the need for employer to wait for the tax deduction.

-ways of structuring the plan's benefit formula are quite limited.

Question 17 2 / 2 pts A profit sharing plan may provide some death benefits. True False

true

Question 18 2 / 2 pts When searching for information about employee benefit tax questions, the first step is

-investigating secondary sources.

-calling the IRS help line.

-reviewing court cases.

-searching the Internet.

investigating secondary sources.

Question 19 2 / 2 pts The only purpose of life insurance is to provide financial support for the family of younger executives in the event of premature death.

True

False

false

Question 20 2 / 2 pts Robbie Little was not pleased with his tax assessment. Robbie retired a few years ago and his wife has been very ill. With his reduced income and increased medical expenses, Robbie cannot afford to pay his assessed taxes. He has received a notice of deficiency from the IRS. Which court should Robbie approach?

-the Federal District Court in his district.

-the United States Tax Court.

-the United States Court of Federal Claims.

-the Small Claims Court in his area.

the United States Tax Court.

Question 21 2 / 2 pts When a key employee dies, key employee life insurance provides the employer with liquid assets to facilitate control of corporate operations.

True

False

true

Question 22 2 / 2 pts A life insurance contract can be used as a "golden handcuffs" offer to an executive.

True

False

true

Question 23 2 / 2 pts Astro Corporation is considering whether to finance its DBO plan obligation in advance. Astro Corp. wants to avoid having to meet ERISA requirements. Astro Corp. should use

-a formally funded plan.

-an informally funded plan.

an informally funded plan.

Question 24 2 / 2 pts Randall and Jake Tobias are brothers who own RJ's Beanery, a local lunch café. The two brothers are discussing their need to arrange for transfer of their closely held business interest if either brother dies. Which step of the life insurance planning process are the brothers exemplifying?

-identify insurance needs.

-fund capital accumulation needs.

-analyze existing plans.

-identify objectives.

-monitor progress.

identify insurance needs.

Question 25 2 / 2 pts According to the Treasury Regulations, a split dollar life insurance plan may be used only in an employer-employee relationship.

True

False

false

Question 26 0 / 2 pts John Moser and June Poulter are both fifty-three. They are both project managers at BlueBug Notes and they have both worked for the company for three years. Their salary is about the same. Should the contribution and benefits of their employer-based life insurance be the same for John and June?

- yes, John and June should pay the same amount and receive the same benefit for their employer-based life insurance.

-no, John and June should not pay the same amount and receive the same benefit for their employer-based life insurance.

yes, John and June should pay the same amount and receive the same benefit for their employer-based life insurance.

Question 27 2 / 2 pts Most tax cases are decided by the Federal District Court in the taxpayer's district.

True

False

false

Question 28 2 / 2 pts Federal tax law specifically limits the maximum pension benefit that an employer can provide to an employee.

True

False

true

Question 29 0 / 2 pts Miguel Lopez is the accountant for Half-Full Storage. Which of the following questions should he ask to determine which accounting rules to follow for the pension plan?

-Is this a qualified plan?

-What is the annual pension cost at Half-Full Storage?

-Are these one or more individual deferred compensation contracts?

-Is this an unqualified plan?

Are these one or more individual deferred compensation contracts? Is this an unqualified plan?

Question 30 2 / 2 pts Fiduciaries are required to act in accordance with a plan's terms if they differ from ERISA.

True

False

false

Question 31 2 / 2 pts Millie Rhodes is training Belinda Wise, a new accountant, to perform the accounting tasks for the company pension plan. Belinda asks how to determine the net periodic pension cost. How should Millie respond?

-use the plan's past service costs

-use the unit credit method

-use the unfunded accumulated-benefit obligation

-use the unamortized prior service costs

use the unit credit method

Question 32 2 / 2 pts Partnerships and proprietorships can't be controlled groups.

True

False

false

Question 33 2 / 2 pts Fiduciaries have been sued for breach of loyalty for

-making prudent investments.

-maintaining investment policy statements.

-engaging a service provider.

-using plan assets to purchase shares in companies to advance their own interests in those companies.

using plan assets to purchase shares in companies to advance their own interests in those companies.

Question 34 2 / 2 pts Bee Magic is a beekeeping business that provides bees to pollinate the orchards of local growers. For the past twelve years, Bee Magic has signed contracts with the same four local growers. Are the employees of Bee Magic leased?

-yes, the employees are leased.

-no, the employees are not leased.

no, the employees are not leased.

Question 35 2 / 2 pts Recent court cases restrict an employer's right to unilaterally modify or rescind benefits provided to retirees.

True

False

true

Question 36 2 / 2 pts When determining if a fiduciary followed the "prudent person" rule, courts must consider the results of an investment.

True

False

false

Question 37 2 / 2 pts In a controlled group, employees of an affiliated service group can be treated as employed by a single employer.

True

False

true

Question 38 2 / 2 pts Typical corporate-owned life insurance policies or asset reserves can be used as plan assets.

True

False

false

Question 39 2 / 2 pts The common control rules are complicated, because the forms in which businesses can be owned are complicated.

True

False

true

Question 40 2 / 2 pts Stock options are a very common form of executive compensation.

True

False

true

Question 41 2 / 2 pts Rules for dealing with special accounting problems in plan termination are found in

-FAS 88.

-FAS 158.

-FASB Technical Bulletin 85-4.

-FAS 96.

-FAS 88.

Question 42 2 / 2 pts Spaw Day is a dog grooming service that has been in business for five years. It employs two full-time groomers and several part-time workers. All appointments are made through Dr. Jeffrey Barker's Spaw Animal Clinic, the pets are groomed in a separate area in the animal clinic, and all of the pets groomed are Dr. Barker's clients. Are the employees of Spaw Day leased?

-yes, the employees are leased.

-no, the employees are not leased.

yes, the employees are leased.

Question 43 0 / 2 pts If plan participants must contribute to the life insurance plan, men and women should pay the same rates. -True -False

true

Question 44 0 / 2 pts The value of a stock option is based on

-the market price of a similar option.

-the length of time between when it's given and when it's exercised.

-the value the company wants to give to the employee as a reward.

-the employee's compensation.

the market price of a similar option.

Question 45 2 / 2 pts Evaluating expenses to determine if they are reasonable complies with the

-duty of loyalty.

-duty to diversify.

-"exclusive purpose" rule.

-"prudent person" rule.

"exclusive purpose" rule.

Question 46 2 / 2 pts FASB 109 requires corporations to record

-taxable gains.

-corporate earnings.

-deferred taxes.

-termination costs.

deferred taxes.

Question 47 2 / 2 pts Stone Valley Bakery was established in 1968. Last year, it had fifty-eight employees working full-time and twelve employees working part time. However, the company fell on hard times this year, facing more competition and increased costs. It shut down its brick-and-mortar locations and it's trying to expand its online commerce. It currently has only twelve full-time employees and three part-time employees. Is it affected by the ADEA?

-yes, Stone Valley Bakery is covered by the ADEA.

-no, Stone Valley Bakery is not covered by the ADEA.

yes, Stone Valley Bakery is covered by the ADEA.

Question 48 2 / 2 pts Which of the following criteria must be true for ADEA to apply to a business?

-must be in business for at least five years.

-must have at least twenty employees.

-must be open at least five days a week.

-must have a benefit plan.

must have at least twenty employees.

Question 49 2 / 2 pts Pension plans are governed by

-Accounting Principles Board (APB) Opinion No. 12, as amended by FAS 106.

-FAS 87.

-FAS 88.

-FAS 158.

FAS 87.

Question 50 2 / 2 pts Tony Widdel is confused. His company frequently uses stock options to reward executives, even though the shares are not traded on an established market. He wonders if the options count as a compensation cost because they don't have a real price. He asks you, the accounting supervisor, if the options should be counted as a compensation cost.

-yes, the options should be counted as a compensation cost

-no, the options should not be counted as a compensation cost

yes, the options should be counted as a compensation cost