EA2 Study Unit 4.1 Compensation - Questions PDF

1)[]{#anchor} []{#anchor-1}All of the following statements about fringe benefits for 2023 are true EXCEPT []{#anchor-2} Answer (B) is correct.\ An employer can exclude from an employee's income up to \$15,950 for qualifying adoption expenses provided by the employer. ---------------------------...

1)[]{#anchor} []{#anchor-1}All of the following statements about fringe benefits for 2023 are true EXCEPT []{#anchor-2} Answer (B) is correct.\ An employer can exclude from an employee's income up to \$15,950 for qualifying adoption expenses provided by the employer. ------------------------------ ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 2)[]{#anchor-3}[]{#anchor-4} []{#anchor-5}Bob works on the loading dock for the Loaden Partnership from 7:00 a.m. to 3:00 p.m., Monday - Friday. Susan, the full-time secretary, works a 4-day week. Max, the bookkeeper, is the sole proprietor of the Books-I-Keep Accounting Service and is a licensed accountant. Max works a different schedule each week for Loaden but is very conscientious and reliable. How many of these individuals are considered employees?[]{#anchor-6} ------------------------------ ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ------------------------------ ------------------------------------------------------------------------------------------------------------------------------------- 3)[]{#anchor-7}[]{#anchor-8} []{#anchor-9}Which of the following statements is true in respect to determining when fringe benefits are deductible?[]{#anchor-10} ------------------------------ ------------------------------------------------------------------------------------------------------------------------------------- Answer (A) is correct.\ Cafeteria plans are employer-sponsored benefit packages that offer employees a choice between taking cash and receiving qualified benefits, such as accident and health coverage or group-term life insurance coverage. No amount is included in the gross income of the participant unless cash is chosen.Answer -------------------------------- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ 4)[]{#anchor-11}[]{#anchor-12} []{#anchor-13}Karla operates a clothing store and paid \$24,000 in wages to two employees (\$12,000 each). She also provided for child care for their children valued at \$3,600 for each employee. The employees also received clothing from the store, having a total value of \$800, for working 5 extra days. How much is deductible by Karla?[]{#anchor-14} -------------------------------- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Answer (B) is correct.\ Section 162(a)(1) allows a deduction for reasonable compensation for personal services. Section 83(a) allows the deduction to an employer equal to the fair market value of property given to the employee when the property is transferable or is not subject to a substantial risk of forfeiture. The value of the child care services provided by the employer also constitutes compensation for the employee's services and is deductible by the employer (up to \$5,000 per employee). Karla can deduct \$32,000 \[\$24,000 wages + (\$3,600 child care × 2 employees) + \$800 clothing\]. -------------------------------- ---------------------------------------------------------------------------------------------------------------------- 5)[]{#anchor-15}[]{#anchor-16} []{#anchor-17}Payments made to employees are normally currently deductible as business expenses EXCEPT[]{#anchor-18} -------------------------------- ---------------------------------------------------------------------------------------------------------------------- -- -- -- -- -------------------------------- ---------------------------------------------------------------------------------------------------------------------- 5)[]{#anchor-19}[]{#anchor-20} []{#anchor-21}Payments made to employees are normally currently deductible as business expenses EXCEPT[]{#anchor-22} -------------------------------- ---------------------------------------------------------------------------------------------------------------------- -- -- -- -- Answer (C) is correct.\ Normally, Sec. 162(a)(1) allows a deduction for a reasonable allowance for salaries or other compensation for personal services. However, Sec. 263A requires all direct costs and a proper share of indirect costs allocable to property produced by the taxpayer to be capitalized. Wages paid to employees for constructing a new building would be direct costs allocable to that building. Those costs are capitalized and depreciated as part of the cost of the building rather than currently deductible. -------------------------------- ------------------------------------------------------------------------------------------------------------------------- 6)[]{#anchor-23}[]{#anchor-24} []{#anchor-25}Which of the following fringe benefits is NOT excludable from an employee's wages for 2023?[]{#anchor-26} -------------------------------- ------------------------------------------------------------------------------------------------------------------------- Answer (A) is correct.\ Under Sec. 79, the cost of qualified group term life insurance paid by an employer is included in the employee's gross income to the extent that such cost exceeds the cost of \$50,000 of such insurance. The includible cost is determined on the basis of uniform premiums prescribed by regulations, rather than actual cost.