AWMA Exam 2 Questions and Correct Detailed Answers (Verified Answers) Already Graded A+ Newest Version
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AWMA Exam 2 Questions and Correct Detailed Answers (Verified Answers) Already Graded A+ Newest Version
Which one of the following statements best describes characteristics of a golden parachute plan?
A) A golden parachute plan is an arrangement that provides a severance benefit to a valued em...
AWMA Exam 2 Questions and Correct
Detailed Answers (Verified Answers)
Already Graded A+ Newest Version
Which one of the following statements best describes characteristics of a golden
parachute plan?
A) A golden parachute plan is an arrangement that provides a severance benefit to a
valued employee conditioned on the sale or substantial change in ownership of the
company and the subsequent termination of the employee.
B) A golden parachute plan is an arrangement that provides an employee with
retirement benefits in addition to those provided by the employer's profit sharing plan.
C) The payments consist solely of monetary awards.
D) The parachute payment is always subject to a 20% penalty. - Answer- A) A golden
parachute plan is an arrangement that provides a severance benefit to a valued
employee conditioned on the sale or substantial change in ownership of the company
and the subsequent termination of the employee. The 20% penalty would only apply if
there is an excess parachute payment. Mod 6
Which one of the following corporations would most likely benefit from a supplemental
executive retirement plan (SERP)?
A) X Corporation would like to establish an unfunded plan that will provide benefits for a
vice president in excess of those provided by the company's qualified plan.
B) W Corporation has $50,000 it would like to set aside as a severance benefit for a key
employee.
C) Y Corporation has a president to whom it would like to pay a bonus.
D) Z Corporation would like to sever ties with its current president. - Answer- A) A
supplemental executive retirement plan is a funded or an unfunded plan providing
benefits for select employees in excess of those provided by the employer's qualified
retirement plan. Mod 6
Which of the following legal requirements apply to employee stock ownership plans
(ESOPs)?
I. ESOPs must permit age-55 participants who have at least 10 years of participation
the opportunity to diversify their accounts.
II. ESOPs cannot be integrated with Social Security.
III. An employer's deduction for ESOP contributions and amounts made to repay
interest on an ESOP's debt cannot exceed 25% of the participants' payroll.
,IV. The mandatory 20% income tax withholding requirement does not apply to
distributions of employer stock from an ESOP.
A) I, II, and III
B) II and III
C) I and II
D) I, II, and IV - Answer- D) I and II correctly state the diversification rule and the rule
that prohibits integrated ESOPs. There is no limit on amounts used to pay interest on
ESOP debt. ESOP distributions of employer stock only are not subject to the 20%
income tax withholding requirement. Mod 6
Five years ago, Katie was granted 2,000 incentive stock options (ISOs) with the
exercise price of $30. The stock price was $30 on that date. On February 2nd of this
year, she exercised all 2,000 options at $67. Katie has decided to dispose of the stock
she acquired through the exercise of her ISOs early next year. What is the tax impact of
this transaction?
A) Katie will not have any AMT income adjustment.
B) Katie will have an AMT income adjustment of $74,000.
C) Katie will have an AMT income adjustment of $60,000.
D) Katie will have an AMT income adjustment of $134,000. - Answer- B) The bargain
element, $67 - $30 = $37, multiplied by the number of shares, will be an AMT
adjustment. Mod 6
Which of these is an advantage of using a foreign situs trust for asset protection?
A) They usually cost less to create than domestic trusts.
B) It costs less to litigate in a foreign jurisdiction.
C) The foreign laws are usually less creditor friendly than those in the United States.
D) They usually cost less to maintain than domestic trusts - Answer- C) These laws are
the main reason for using a foreign situs trust. Mod 7
Which statement about the eligibility to renounce citizenship and the consequences of a
successful renunciation is not correct?
A) The expatriate gives up his U.S. citizenship before becoming 18½ years old and was
a U.S. resident for not more than 10 tax years before relinquishing citizenship.
B) The person renouncing their citizenship or residency has recently come into a large
inheritance.
C) There is an inflation-adjusted exemption for some of the gain subject to the mark-to-
market rules.
D) The expatriate was at birth a dual citizen of the United States and another country.
On the expatriation date, she continues to be a citizen, and is taxed as a resident, of the
, other country and has been a U.S. resident for more than 10 tax years during the 15-
tax-year period in which the expatriation date occurs. - Answer- B) Receiving a large
inheritance is not a statutory exception to application of the mark-to-market rule. Mod 7
Which statement regarding qualified personal residence trusts (QPRTs) is NOT correct?
A) The Chapter 14 valuation rules require the grantor to pay gift tax on the entire value
of the residence at the time the trust is funded.
B) The donor is not entitled to the annual exclusion for the gift of the remainder interest.
C) The grantor will be subject to gift tax only on the present value of the remainder
interest.
D) The grantor retains the right to live in the residence during the trust term. - Answer-
A) QPRTs are an exception to the normal Chapter 14 rules because the grantor has
retained a qualified interest. Thus, only the present value of the future interest will be
subject to gift taxes instead of the full value of the trust. However, the remainder interest
is ineligible for the annual exclusion. Mod 7
Which statement regarding self-canceling installment notes (SCINs) is NOT correct?
A) Even though part or all of the payments under a SCIN may be canceled at the
seller's death, the seller's estate must recognize the gain, if any, in the canceled
payments.
B) The term of the SCIN can be for any time period the parties choose.
C) All of these statements are correct.
D) If the self-canceling provisions of a SCIN never become operative, the tax
consequences of a SCIN are identical to those of a regular installment sale with
equivalent terms. - Answer- B) The term of the SCIN must not exceed the seller's
actuarial lifetime. This would result in inordinately low payments, especially since the
seller of the SCIN probably expects to die sooner than the average life expectancy for
someone in his or her situation. Mod 7
Goals that a business owner can reasonably expect to achieve in a preferred stock
recapitalization include all of the following except
A) maintaining a preference in payment of income from the business.
B) none of these goals can be achieved through a preferred stock recapitalization.
C) eliminating the value of the business from his or her gross estate.
D) maintaining control of the business. - Answer- C) Eliminating the value of the
business from the gross estate would require the owner to give up all ownership and
control of the business. Mod 7
Which statement regarding private annuities is NOT correct?
A) If the sole annuitant dies before the end of his actuarial lifetime, the present value of
the future payments that would have been received over the actuarial lifetime is
included in the annuitant's gross estate.
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