AWMA Test Review 1 2025/2026 Exam
Questions and Verified Answers |
Already Graded A+
If ABC Corporation has net profits of $100,000 and distributes $50,000 as
dividends, what is its taxable income?
A. $0
B. $25,000
C. $50,000
D. $100,000 - 🧠 ANSWER ✔✔The net profits of a corporation are subject to
federal income taxation. This tax is levied on corporate taxable income before
payment of dividends to common and preferred shareholders. Thus, if ABC
Corporation has net profits of $100,000 and distributes $50,000 as dividends, its
,taxable income is still $100,000. Distribution of profits as dividends does not
reduce taxable income for a corporation
Qualified Plans - 🧠 ANSWER ✔✔Meet the stringent requirements of the IRC as
well as those of the ERISA and therefore qualify for favorable tax treatment. In
pension and profit sharing plans an employee is generally not taxed on employer
contributions or accumulated earnings until the funds are actually received from
the plan. The employer receives a deduction at the time of contribution. for
qualified stock option plans the employee is not taxed until it is sold.
Nonqualified plans - 🧠 ANSWER ✔✔Do not qualify for special tax treatment.
They don't permit the employer to take a deduction for plan contributions until the
employee reports income from the plan, which is often at retirement. Earnings not
tax deferred - earnings are taxed to the employer or employee depending on the
plans design
Nonqualified deferred comp plan - 🧠 ANSWER ✔✔Do not qualify for the same
special tax treatment. They do not permit the employer to take a deduction for plan
contributions until the employee reports income from the plan, which is often at
retirement. Also, the earnings on plan assets are not tax deferred; instead, earnings
are taxed to the sponsor(employer) or to the participant (employee), depending on
,the plan design. The irs rules do permit an employee to agree to defer income to a
nonqualified plan and not be taxed on the deferral until some point in the future if
the 3 rules are followed.
Economic Benefit - 🧠 ANSWER ✔✔A taxpayer has income when he receives the
economic benefit of the proceeds. This occurs when the employer irrevocably
places funds for the benefit of the employee beyond the reach of the employers
creditors. Income is thus received if the employee does not have actual or even
constructive receipt.(applies to funded plans)
Corporate owned life insurance - 🧠 ANSWER ✔✔commonly used by employers to
informally fund future benefit obligations such as those promised under a deferred
comp plan. As the owner of the policies the employer is responsible for paying the
premiums. The employer is also the beneficiary of the policies and retains all rights
to policy benefits, including the cash value buildup and the death proceeds.
COLI is attractive to employers because it - 🧠 ANSWER ✔✔1. Provides
psychological assurance to deferred comp plan participants that their benefit are
secure.
2. reduces strain on the companys cash flow when plan distributions are due
3. provides tax-deferred, and possibly tax free buildup of cash value; and
COPYRIGHT©NINJANERD 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
3
, 4. enables the employer to recover some/all of the plan costs.
Changes that have occurred since investment firms changed from private
partnerships to publicly traded companies include all of the following except:
A. risk taking has increased.
B. profits can be privatized (bonuses) and losses socialized (bailouts).
C. there is greater individual accountability.
D. partners no longer share in both the profits and losses of the firm. - 🧠 ANSWER
✔✔C. The repeal of Glass-Steagall accelerated the conversion of investment firms
that had been structured as partnerships into publicly traded companies that took
on more risk. This transferred much of the risk and accountability from general
partners to public shareholders
Equity REITS - 🧠 ANSWER ✔✔Equity REITs own real estate properties and earn
income from rents, and made up 94.4% of the REIT market (by capitalization) at
the end of 2015. Upon the sale of the properties, a capital gain is earned. Generally,
income from rents can be expected to increase each year. Equity REITs are
appropriate when one objective is to provide an inflation hedge
Questions and Verified Answers |
Already Graded A+
If ABC Corporation has net profits of $100,000 and distributes $50,000 as
dividends, what is its taxable income?
A. $0
B. $25,000
C. $50,000
D. $100,000 - 🧠 ANSWER ✔✔The net profits of a corporation are subject to
federal income taxation. This tax is levied on corporate taxable income before
payment of dividends to common and preferred shareholders. Thus, if ABC
Corporation has net profits of $100,000 and distributes $50,000 as dividends, its
,taxable income is still $100,000. Distribution of profits as dividends does not
reduce taxable income for a corporation
Qualified Plans - 🧠 ANSWER ✔✔Meet the stringent requirements of the IRC as
well as those of the ERISA and therefore qualify for favorable tax treatment. In
pension and profit sharing plans an employee is generally not taxed on employer
contributions or accumulated earnings until the funds are actually received from
the plan. The employer receives a deduction at the time of contribution. for
qualified stock option plans the employee is not taxed until it is sold.
Nonqualified plans - 🧠 ANSWER ✔✔Do not qualify for special tax treatment.
They don't permit the employer to take a deduction for plan contributions until the
employee reports income from the plan, which is often at retirement. Earnings not
tax deferred - earnings are taxed to the employer or employee depending on the
plans design
Nonqualified deferred comp plan - 🧠 ANSWER ✔✔Do not qualify for the same
special tax treatment. They do not permit the employer to take a deduction for plan
contributions until the employee reports income from the plan, which is often at
retirement. Also, the earnings on plan assets are not tax deferred; instead, earnings
are taxed to the sponsor(employer) or to the participant (employee), depending on
,the plan design. The irs rules do permit an employee to agree to defer income to a
nonqualified plan and not be taxed on the deferral until some point in the future if
the 3 rules are followed.
Economic Benefit - 🧠 ANSWER ✔✔A taxpayer has income when he receives the
economic benefit of the proceeds. This occurs when the employer irrevocably
places funds for the benefit of the employee beyond the reach of the employers
creditors. Income is thus received if the employee does not have actual or even
constructive receipt.(applies to funded plans)
Corporate owned life insurance - 🧠 ANSWER ✔✔commonly used by employers to
informally fund future benefit obligations such as those promised under a deferred
comp plan. As the owner of the policies the employer is responsible for paying the
premiums. The employer is also the beneficiary of the policies and retains all rights
to policy benefits, including the cash value buildup and the death proceeds.
COLI is attractive to employers because it - 🧠 ANSWER ✔✔1. Provides
psychological assurance to deferred comp plan participants that their benefit are
secure.
2. reduces strain on the companys cash flow when plan distributions are due
3. provides tax-deferred, and possibly tax free buildup of cash value; and
COPYRIGHT©NINJANERD 2025/2026. YEAR PUBLISHED 2025. COMPANY REGISTRATION NUMBER: 619652435. TERMS OF USE.
PRIVACY STATEMENT. ALL RIGHTS RESERVED
3
, 4. enables the employer to recover some/all of the plan costs.
Changes that have occurred since investment firms changed from private
partnerships to publicly traded companies include all of the following except:
A. risk taking has increased.
B. profits can be privatized (bonuses) and losses socialized (bailouts).
C. there is greater individual accountability.
D. partners no longer share in both the profits and losses of the firm. - 🧠 ANSWER
✔✔C. The repeal of Glass-Steagall accelerated the conversion of investment firms
that had been structured as partnerships into publicly traded companies that took
on more risk. This transferred much of the risk and accountability from general
partners to public shareholders
Equity REITS - 🧠 ANSWER ✔✔Equity REITs own real estate properties and earn
income from rents, and made up 94.4% of the REIT market (by capitalization) at
the end of 2015. Upon the sale of the properties, a capital gain is earned. Generally,
income from rents can be expected to increase each year. Equity REITs are
appropriate when one objective is to provide an inflation hedge
