CHAPTER 19--DEFERRED COMPEN

E what amount if any is recognized in 2011 if the

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e. What amount, if any, is recognized in 2011 if the stock is sold for $9.50 per share? 16
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97. On January 1, 2007, Gail (an executive) receives a warrant to purchase one share of stock at $70 and on the same date the fair market value of the stock is $100. The warrant has no restrictions and has a readily ascertainable fair market value on a stock exchange of $30. She exercises the warrant on May 15, 2007, and sells the stock for $200 on December 20, 2010. a. Calculate the amount Gail would recognize in 2007, if any. b. Calculate the amount Gail would recognize in 2010, if any. c. Suppose she sells the warrant in 2011 for $39. What amount would Gail recognize? 98. What is a cash balance plan? 99. Explain the participation requirement for a qualified plan. 17
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100.What is the most significant difference between a traditional IRA and a Roth IRA? 101.Explain to a small business owner some advantages and disadvantages of a simplified employee pension plan (SEP). 102.Under what circumstances is it advantageous for an employee to elect to be taxed immediately as ordinary income on the FMV in excess of the amount paid for restricted property? 103.From an employee’s point of view, discuss the difference between the tax treatment accorded to a nonqualified stock option (NQSO) that has an ascertainable fair market value and one that does not. 18
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104.Compare a § 401(k) plan with an IRA. 105.If a person has funds from sources other than retirement assets when he or she retires, which retirement asset should be spent first? 19
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CHAPTER 19--DEFERRED COMPENSATION Key 1. The tax law encourages employers to offer deferred compensation plans to their employees to supplement the Federal Social Security retirement system. TRUE 2. Contributions to a stock bonus plan are immediately deductible by an employer. TRUE 3. Qualified plans have lower startup and administrative costs than nonqualified plans. FALSE 4. A restricted property plan is not considered to be a deferred compensation arrangement. FALSE 5. A medical reimbursement plan is considered to be a type of deferred compensation plan. FALSE 6. Employer contributions under a qualified pension plan do notdepend upon profits. TRUE 7. In a defined benefit plan, the employer (not the employee) assumes any market risk. TRUE 8. In a profit sharing plan, an employer must have current or accumulated profits to make a contribution to the plan. FALSE 9. In a cash balance plan, the employer bears the investment risks and rewards. TRUE 10. Cliff vesting minimizes administrative expenses for a company and provides more vesting for long-term employees. TRUE 11. A failure to make a minimum required distribution to a participant in any taxable year results in a 10% nondeductible excise tax on any excess of the amount that should have been distributed over the amount that actually was distributed.
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  • Spring '12
  • honig
  • a. b. c., b. c. d., C. D. E.

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