CEP Level 1 Accounting UPDATED
ACTUAL Exam Questions and CORRECT
Answers
ESPP - CORRECT ANSWER - Employee enrolls and elects a percentage of after-tax
compensation deducted from each paycheck during the offering period
Grant Date - CORRECT ANSWER - Tax Term for Offering Date; the date at which the
option or equity award is granted to the recipient
Exercise of an Option - CORRECT ANSWER - Tax Term for Purchase Date
Look-Back - CORRECT ANSWER - Plan design feature in which the purchase price of
the shares is based on the lower of FMV at the beginning or end of the offering period
Non Qualified Plans - CORRECT ANSWER - ESPP plan that does not qualify under IRC
Secition 423
Qualified Plans - CORRECT ANSWER - Plans that meet the criteria outlined in 423
IRC Section 423 - CORRECT ANSWER - Qualified and participants can receive
preferential tax treatment
IRC 423 Requirements - CORRECT ANSWER - 1. Employees Only
2. Shareholder Approval
3. No 5% shareholders
4. Eligibility (ex. Full time employees)
5. Equal Rights and Privileges
6. Purchase Price 85% of FMV
, 7. Offering Period must not exceed 27 months
8. IRS Limit 25K
9. Non-transferable
Selecting the Appropriate Plan - CORRECT ANSWER - - Design must meet company
objectives
- Consider workforce demographics
- Weigh financial and admin costs
- Include complex features - resets, rollover, increases/decreases
-+ Impact of Design Features
Key ESPP Design Features - CORRECT ANSWER - 1. Length of Offering Period
2. Look-back/ no look back
3. Discount on the purchase
Qualified plans are used frequently to ________ the tax effectiveness of the employee benefit -
CORRECT ANSWER - increase
A plan with no look back and 5% discount is considered _________ for financial reporting
purposes - CORRECT ANSWER - non compensatory (ie no cost)
A financial cost __________ for the plan with longer offering period, a look back, and larger
discount - CORRECT ANSWER - increases
A _________ plan may seem attractive from an expense standpoint, but it is likely to have
_______ participation rates, as employees _____ see value - CORRECT ANSWER - non
compensatory; low; may not
The financial benefits for non-US employees to hold company stock can be risky because of -
CORRECT ANSWER - the risk of currency fluctuation and stock price fluctuation
ACTUAL Exam Questions and CORRECT
Answers
ESPP - CORRECT ANSWER - Employee enrolls and elects a percentage of after-tax
compensation deducted from each paycheck during the offering period
Grant Date - CORRECT ANSWER - Tax Term for Offering Date; the date at which the
option or equity award is granted to the recipient
Exercise of an Option - CORRECT ANSWER - Tax Term for Purchase Date
Look-Back - CORRECT ANSWER - Plan design feature in which the purchase price of
the shares is based on the lower of FMV at the beginning or end of the offering period
Non Qualified Plans - CORRECT ANSWER - ESPP plan that does not qualify under IRC
Secition 423
Qualified Plans - CORRECT ANSWER - Plans that meet the criteria outlined in 423
IRC Section 423 - CORRECT ANSWER - Qualified and participants can receive
preferential tax treatment
IRC 423 Requirements - CORRECT ANSWER - 1. Employees Only
2. Shareholder Approval
3. No 5% shareholders
4. Eligibility (ex. Full time employees)
5. Equal Rights and Privileges
6. Purchase Price 85% of FMV
, 7. Offering Period must not exceed 27 months
8. IRS Limit 25K
9. Non-transferable
Selecting the Appropriate Plan - CORRECT ANSWER - - Design must meet company
objectives
- Consider workforce demographics
- Weigh financial and admin costs
- Include complex features - resets, rollover, increases/decreases
-+ Impact of Design Features
Key ESPP Design Features - CORRECT ANSWER - 1. Length of Offering Period
2. Look-back/ no look back
3. Discount on the purchase
Qualified plans are used frequently to ________ the tax effectiveness of the employee benefit -
CORRECT ANSWER - increase
A plan with no look back and 5% discount is considered _________ for financial reporting
purposes - CORRECT ANSWER - non compensatory (ie no cost)
A financial cost __________ for the plan with longer offering period, a look back, and larger
discount - CORRECT ANSWER - increases
A _________ plan may seem attractive from an expense standpoint, but it is likely to have
_______ participation rates, as employees _____ see value - CORRECT ANSWER - non
compensatory; low; may not
The financial benefits for non-US employees to hold company stock can be risky because of -
CORRECT ANSWER - the risk of currency fluctuation and stock price fluctuation
