CEPA EXAM STUDY GUIDE QUESTIONS WITH FULLY SOLVED
AND UPDATED ANSWERS.
1) For ________, Seller must have held stock for three years & Qualifying Replacement
_ _ _ _ _ _ _ _ _ _ _ _
Property (QRP) within one year. QRP: -- Correct Answer ✔✔ 1042, Stocks and
_ _ _ _ _ _ _ _ _ _ _ _ _ _
Bonds of U.S. operating companies as defined by §1042
_ _ _ _ _ _ _ _
2) Seller who makes 1042 election, and their family members, cannot receive ESOP
_ _ _ _ _ _ _ _ _ _ _ _
stock allocations like other employees -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _
3) Employees can 'rollover' ESOP payments to IRA -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _
4) Annual Contributions to ESOP create a tax deduction -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _ _
5) ESOP participants have approximately ____. times as much in their accounts as
_ _ _ _ _ _ _ _ _ _ _ _
participants in comparable non-ESOP companies with Defined Contribution plans --
_ _ _ _ _ _ _ _ _ _
Correct Answer ✔✔ 2.2 _ _ _
6) For an ESOP, avoid potential ___________________ during economic downturns.
_ _ _ _ _ _ _ _ _
-- Correct Answer ✔✔ loss of jobs
_ _ _ _ _ _
7) "Put right" on ESOP shares ("Liquidity" for their stock) -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _ _ _
8) Disadvantage of and lack of premium purchase price offered by strategic buyer for an
_ _ _ _ _ _ _ _ _ _ _ _ _ _
ESOP can only pay Fair Market Value -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _
9) Owners may not get 100% "cash out" at closing. Even with bank borrowing, a 100%
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
sale will require taking back a "seller note" for a portion of the sale price. -- Correct
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ _ _
10) Repurchase Obligation post-formation must be planned for by the Company. --
_ _ _ _ _ _ _ _ _ _ _
Correct Answer ✔✔ NEED TO FIX: ESOP must honor the employee put.
_ _ _ _ _ _ _ _ _ _ _
,11) DOL is supposed to audit retirement plans every ______________ years. --
_ _ _ _ _ _ _ _ _ _ _
Correct Answer ✔✔ six _ _ _
12) Number one requirement for successful ESOP is a
_ _ _ _ _ _ _ _
_____________________________________. -- Correct Answer ✔✔ capable _ _ _ _ _ _
management team to succeed owner _ _ _ _
13) Warrant position is usually paid out in years ___________________. -- Correct
_ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ seven to nine _ _ _ _
14) For an ESOP, the best situation is not a lot of ______________. -- Correct Answer
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
✔✔ debt _
15) ESOP appeals to business owner who isn't ready to
_ _ _ _ _ _ _ _ _
_______________________________. -- Correct Answer ✔✔ "hang it up" right _ _ _ _ _ _ _ _ _
now
16) Employee count (not revenue size) is considered. Difficult for company with less than
_ _ _ _ _ _ _ _ _ _ _ _ _
_______ employees. -- Correct Answer ✔✔ 20-30_ _ _ _ _ _
17) For an ESOP, is company capable of attracting Bank Debt without a
_ _ _ _ _ _ _ _ _ _ _ _
______________ guarantee? -- Correct Answer ✔✔ personal _ _ _ _ _ _
18) For ESOP, __________________________ to gauge "cushion" for economic
_ _ _ _ _ _ _ _
downturn. -- Correct Answer ✔✔ sensitivity analysis
_ _ _ _ _ _
19) ESOP Trustee needs to be _____________________ of the Selling shareholder. --
_ _ _ _ _ _ _ _ _ _ _
Correct Answer ✔✔ independent _ _ _
20) ESOPs are regulated by the both the ______ and ____________. -- Correct
_ _ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ IRS and Department of Labor (DOL)
_ _ _ _ _ _ _
21) In an ESOP, employees never take ownership of __________________________.
_ _ _ _ _ _ _ _ _
-- Correct Answer ✔✔ actual shares
_ _ _ _ _
,22) DOL wants an ESOP to be __________________________. -- Correct Answer
_ _ _ _ _ _ _ _ _ _
✔✔ arms length
_ _
23) ESOP plans must be _________________________. -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _
nondiscriminatory
24) ESOP plans _______________ offer synthetic equity. -- Correct Answer ✔✔ can
_ _ _ _ _ _ _ _ _ _
25) _____% of business families control more than a single firm. The mean number of
_ _ _ _ _ _ _ _ _ _ _ _ _ _
firms controlled by the family is _____ firms. -- Correct Answer ✔✔ 89.4, 3.4
_ _ _ _ _ _ _ _ _ _ _ _ _
26) Most family firms fail during ________________________. -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _
_transitions
27) Four non-financial/human assets: -- Correct Answer ✔✔ human, intellectual, social,
_ _ _ _ _ _ _ _ _ _
spiritual
28) ____% of heirs are not prepared to take over. -- Correct Answer ✔✔ 25
_ _ _ _ _ _ _ _ _ _ _ _ _
29) Breakdown of communication and trust during the family business transition leads to
_ _ _ _ _ _ _ _ _ _ _ _
____% of failure. -- Correct Answer ✔✔ 60
_ _ _ _ _ _ _
30) For family owned businesses ______________ is different than vote. -- Correct
_ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ voice _ _
31) Three parts of the family business system: -- Correct Answer ✔✔ family, business,
_ _ _ _ _ _ _ _ _ _ _ _ _
individual
32) Based on surveys, the most trusted advisor is the ________. -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _ _ _
_CPA
33) ___________________ teams result in fragmented and inconsistent delivery, and _ _ _ _ _ _ _ _ _
lost clients. -- Correct Answer ✔✔ fragmented
_ _ _ _ _ _
, 34) Business owners relate to living on a ________________ to being poor. -- Correct
_ _ _ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ budget _ _
35) Work as a CEPA is not a ____________________ process. It is
_ _ _ _ _ _ _ _ _ _ _
_______________. -- Correct Answer ✔✔ linear, messy _ _ _ _ _ _
36) The common goal is always driven through the
_ _ _ _ _ _ _ _
_____________________________. -- Correct Answer ✔✔ organizing principle _ _ _ _ _ _
37) The most efficient use of the federal estate/gift exemption is
_ _ _ _ _ _ _ _ _ _
__________________. -- Correct Answer ✔✔ during life _ _ _ _ _ _
38) The primary benefit of the Discounted Cash Flow (DCF) method of valuation is that
_ _ _ _ _ _ _ _ _ _ _ _ _ _
it represents a specific forecast of _______________________________. --
_ _ _ _ _ _ _ _
Correct Answer ✔✔ future financial results
_ _ _ _ _
39) __% of owners have no WRITTEN transition plan. -- Correct Answer ✔✔ 79
_ _ _ _ _ _ _ _ _ _ _ _
40) __% have done no planning at all. -- Correct Answer ✔✔ 48
_ _ _ _ _ _ _ _ _ _ _
41) __% have no written personal THIRD ACT plan. -- Correct Answer ✔✔ 94
_ _ _ _ _ _ _ _ _ _ _ _
42) __% of owners plan to transition over the next 10 years (representing ____ million
_ _ _ _ _ _ _ _ _ _ _ _ _ _
businesses and over $___ trillion in wealth). -- Correct Answer ✔✔ 76%, 4.5 million,
_ _ _ _ _ _ _ _ _ _ _ _ _ _
$10 trillion
_
43) ___ of business owners have no transition plan. -- Correct Answer ✔✔ 49%
_ _ _ _ _ _ _ _ _ _ _ _
44) More than __% of businesses that are put on the market do not sell. -- Correct
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ 70 _ _
45) Only __% of family-owned businesses transition to the second generation, and only
_ _ _ _ _ _ _ _ _ _ _ _
__% survive to the third. -- Correct Answer ✔✔ 30%, 12%
_ _ _ _ _ _ _ _ _ _
AND UPDATED ANSWERS.
1) For ________, Seller must have held stock for three years & Qualifying Replacement
_ _ _ _ _ _ _ _ _ _ _ _
Property (QRP) within one year. QRP: -- Correct Answer ✔✔ 1042, Stocks and
_ _ _ _ _ _ _ _ _ _ _ _ _ _
Bonds of U.S. operating companies as defined by §1042
_ _ _ _ _ _ _ _
2) Seller who makes 1042 election, and their family members, cannot receive ESOP
_ _ _ _ _ _ _ _ _ _ _ _
stock allocations like other employees -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _
3) Employees can 'rollover' ESOP payments to IRA -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _
4) Annual Contributions to ESOP create a tax deduction -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _ _
5) ESOP participants have approximately ____. times as much in their accounts as
_ _ _ _ _ _ _ _ _ _ _ _
participants in comparable non-ESOP companies with Defined Contribution plans --
_ _ _ _ _ _ _ _ _ _
Correct Answer ✔✔ 2.2 _ _ _
6) For an ESOP, avoid potential ___________________ during economic downturns.
_ _ _ _ _ _ _ _ _
-- Correct Answer ✔✔ loss of jobs
_ _ _ _ _ _
7) "Put right" on ESOP shares ("Liquidity" for their stock) -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _ _ _
8) Disadvantage of and lack of premium purchase price offered by strategic buyer for an
_ _ _ _ _ _ _ _ _ _ _ _ _ _
ESOP can only pay Fair Market Value -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _
9) Owners may not get 100% "cash out" at closing. Even with bank borrowing, a 100%
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
sale will require taking back a "seller note" for a portion of the sale price. -- Correct
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ _ _
10) Repurchase Obligation post-formation must be planned for by the Company. --
_ _ _ _ _ _ _ _ _ _ _
Correct Answer ✔✔ NEED TO FIX: ESOP must honor the employee put.
_ _ _ _ _ _ _ _ _ _ _
,11) DOL is supposed to audit retirement plans every ______________ years. --
_ _ _ _ _ _ _ _ _ _ _
Correct Answer ✔✔ six _ _ _
12) Number one requirement for successful ESOP is a
_ _ _ _ _ _ _ _
_____________________________________. -- Correct Answer ✔✔ capable _ _ _ _ _ _
management team to succeed owner _ _ _ _
13) Warrant position is usually paid out in years ___________________. -- Correct
_ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ seven to nine _ _ _ _
14) For an ESOP, the best situation is not a lot of ______________. -- Correct Answer
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
✔✔ debt _
15) ESOP appeals to business owner who isn't ready to
_ _ _ _ _ _ _ _ _
_______________________________. -- Correct Answer ✔✔ "hang it up" right _ _ _ _ _ _ _ _ _
now
16) Employee count (not revenue size) is considered. Difficult for company with less than
_ _ _ _ _ _ _ _ _ _ _ _ _
_______ employees. -- Correct Answer ✔✔ 20-30_ _ _ _ _ _
17) For an ESOP, is company capable of attracting Bank Debt without a
_ _ _ _ _ _ _ _ _ _ _ _
______________ guarantee? -- Correct Answer ✔✔ personal _ _ _ _ _ _
18) For ESOP, __________________________ to gauge "cushion" for economic
_ _ _ _ _ _ _ _
downturn. -- Correct Answer ✔✔ sensitivity analysis
_ _ _ _ _ _
19) ESOP Trustee needs to be _____________________ of the Selling shareholder. --
_ _ _ _ _ _ _ _ _ _ _
Correct Answer ✔✔ independent _ _ _
20) ESOPs are regulated by the both the ______ and ____________. -- Correct
_ _ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ IRS and Department of Labor (DOL)
_ _ _ _ _ _ _
21) In an ESOP, employees never take ownership of __________________________.
_ _ _ _ _ _ _ _ _
-- Correct Answer ✔✔ actual shares
_ _ _ _ _
,22) DOL wants an ESOP to be __________________________. -- Correct Answer
_ _ _ _ _ _ _ _ _ _
✔✔ arms length
_ _
23) ESOP plans must be _________________________. -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _
nondiscriminatory
24) ESOP plans _______________ offer synthetic equity. -- Correct Answer ✔✔ can
_ _ _ _ _ _ _ _ _ _
25) _____% of business families control more than a single firm. The mean number of
_ _ _ _ _ _ _ _ _ _ _ _ _ _
firms controlled by the family is _____ firms. -- Correct Answer ✔✔ 89.4, 3.4
_ _ _ _ _ _ _ _ _ _ _ _ _
26) Most family firms fail during ________________________. -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _
_transitions
27) Four non-financial/human assets: -- Correct Answer ✔✔ human, intellectual, social,
_ _ _ _ _ _ _ _ _ _
spiritual
28) ____% of heirs are not prepared to take over. -- Correct Answer ✔✔ 25
_ _ _ _ _ _ _ _ _ _ _ _ _
29) Breakdown of communication and trust during the family business transition leads to
_ _ _ _ _ _ _ _ _ _ _ _
____% of failure. -- Correct Answer ✔✔ 60
_ _ _ _ _ _ _
30) For family owned businesses ______________ is different than vote. -- Correct
_ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ voice _ _
31) Three parts of the family business system: -- Correct Answer ✔✔ family, business,
_ _ _ _ _ _ _ _ _ _ _ _ _
individual
32) Based on surveys, the most trusted advisor is the ________. -- Correct Answer ✔✔
_ _ _ _ _ _ _ _ _ _ _ _ _
_CPA
33) ___________________ teams result in fragmented and inconsistent delivery, and _ _ _ _ _ _ _ _ _
lost clients. -- Correct Answer ✔✔ fragmented
_ _ _ _ _ _
, 34) Business owners relate to living on a ________________ to being poor. -- Correct
_ _ _ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ budget _ _
35) Work as a CEPA is not a ____________________ process. It is
_ _ _ _ _ _ _ _ _ _ _
_______________. -- Correct Answer ✔✔ linear, messy _ _ _ _ _ _
36) The common goal is always driven through the
_ _ _ _ _ _ _ _
_____________________________. -- Correct Answer ✔✔ organizing principle _ _ _ _ _ _
37) The most efficient use of the federal estate/gift exemption is
_ _ _ _ _ _ _ _ _ _
__________________. -- Correct Answer ✔✔ during life _ _ _ _ _ _
38) The primary benefit of the Discounted Cash Flow (DCF) method of valuation is that
_ _ _ _ _ _ _ _ _ _ _ _ _ _
it represents a specific forecast of _______________________________. --
_ _ _ _ _ _ _ _
Correct Answer ✔✔ future financial results
_ _ _ _ _
39) __% of owners have no WRITTEN transition plan. -- Correct Answer ✔✔ 79
_ _ _ _ _ _ _ _ _ _ _ _
40) __% have done no planning at all. -- Correct Answer ✔✔ 48
_ _ _ _ _ _ _ _ _ _ _
41) __% have no written personal THIRD ACT plan. -- Correct Answer ✔✔ 94
_ _ _ _ _ _ _ _ _ _ _ _
42) __% of owners plan to transition over the next 10 years (representing ____ million
_ _ _ _ _ _ _ _ _ _ _ _ _ _
businesses and over $___ trillion in wealth). -- Correct Answer ✔✔ 76%, 4.5 million,
_ _ _ _ _ _ _ _ _ _ _ _ _ _
$10 trillion
_
43) ___ of business owners have no transition plan. -- Correct Answer ✔✔ 49%
_ _ _ _ _ _ _ _ _ _ _ _
44) More than __% of businesses that are put on the market do not sell. -- Correct
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Answer ✔✔ 70 _ _
45) Only __% of family-owned businesses transition to the second generation, and only
_ _ _ _ _ _ _ _ _ _ _ _
__% survive to the third. -- Correct Answer ✔✔ 30%, 12%
_ _ _ _ _ _ _ _ _ _
