Series 65 - Chapters 15 - 24
Which of the following business entities is directly responsible for paying taxes on its income? A)An LLC B)A limited partnership C)A C corporation D)An S corporation
C)A C corporation It is the C corporation, filing Form 1120, that pays taxes. In each of the other cases, any income (or loss) flows through to the investors. In the case of the limited partnership and the LLC, Form 1065 is an information return, and the 1120S filed by an S corporation serves the same purpose. The amount of taxable income is reported to each investor on Schedule K-1.
Your customer redeemed 200 of her 500 Kapco common shares without designating which shares were redeemed. Which of the following methods does the IRS use to determine which shares she redeemed? A)Identified shares B)Wash sale rules C)FIFO D)LIFO
C)FIFO When a customer does not choose a method, the IRS uses FIFO (first-in, first-out). This will likely result in shares with the lowest cost basis being redeemed first, which creates a greater taxable gain.
One of the ways in which a simple trust differs from a complex trust is that simple trusts A)may make distributions from the corpus of the trust. B)are easier to prepare. C)must distribute their distributable net income each year. D)may retain income.
C)must distribute their distributable net income each year. Unlike complex trusts, simple trusts must distribute their DNI on an annual basis. Unlike complex trusts, simple trusts may not make distributions from the corpus (body) of the trust nor may they retain income. The terms simple and complex do not refer to the simplicity of the trust preparation.
A common stock's current yield expresses the annual dividend payout as a percentage of the current stock price:
Current yield= annual dividends per common share market value per common share
In order for an individual to receive Social Security benefits based on the earnings of the ex-spouse, the couple must have been married for at least A)10 years. B)5 years. C)1 year. D)2 years.
A)10 years.
If ABC Fund pays regular dividends, offers a high degree of safety of principal, and appeals especially to investors seeking tax advantages, ABC is A)a municipal bond fund B)a money market fund C)a corporate bond fund D)an aggressive growth fund
A)a municipal bond fund
Who is obligated for the payment of taxes in an UTMA account? A)Parent B)Child C)Custodian D)Donor
B)Child UTMA and UGMA accounts are custodial accounts. They are for the benefit of the child and bear the child's Social Security number. Although in practice the taxes are usually paid by the parent or legal guardian, they are the responsibility of the beneficial minor (child). THE CUSTODIAN MUST BE AN ADULT
A trust account figuring its distributable net income (DNI) for the year would exclude A)interest on tax-free municipal bonds. B)capital gains reinvested in the corpus of the trust. C)qualified dividends on domestic stock. D)interest on U.S. government bonds.
B)capital gains reinvested in the corpus of the trust. If a trust will reinvest its capital gains back into the body of the trust, those gains will not be included in DNI. Interest on municipal bonds is included but is not taxable to the recipient of the distribution. DNI consists of dividends and interest.
A taxpayer is a participant in a 401(k) plan. The vested value in the account is $90,000. If the individual wishes to take out a loan, the maximum permitted amount is A)$50,000. B)$90,000. C)$9,000. D)$45,000.
D) $45,000.
Withdrawals from a traditional IRA made by an owner aged 54 would be exempt from the 10% penalty in all of the following circumstances except A)to pay for certain medical expenses. B)the first-time purchase of a primary residence ($10,000 lifetime maximum). C)when the withdrawal is done under a qualified domestic relations order (QDRO). D)when the taxpayer is disabled.
C) when the withdrawal is done under a qualified domestic relations order (QDRO). The QDRO is applicable to qualified plans, not to an IRA. Death or disability evades the 10% penalty for those under 59½. The same is true for certain medical expenses (the exam will not get into the specific details) and the first-time purchase of a primary residence.
The dividend payout ratio measures the proportion of earnings paid to stockholders as dividends:
Dividend payout ratio= annual dividends per common share earnings per share (EPS)
Which of the following business accounts requires a minimum of two owners? A)A general partnership B)A sole proprietorship C)An S corporation D)An LLC
A)A general partnership The very definition of a partnership requires at least two persons. Sole proprietorship by definition is a single person. LLCs and S corporations can consist of a single owner.
Jill is an investment adviser representative with FairPlay Advisers, an SEC-registered investment advisory firm. At the recommendation of a close friend who is a client of Jill's, Tom comes in for an interview and portfolio analysis. When examining Tom's IRA, which of the following holdings would Jill feel the need to immediately review? A)ABC Municipal Bond Fund B)GHI Large-Cap Equity Index Fund C)KL Money Market Fund D)DEF U.S. Government Bond Fund
A)ABC Municipal Bond Fund Although not illegal, it is generally considered inappropriate to include tax-exempt securities, such as municipal bonds (whether individual bonds or in a fund), in a tax-deferred retirement plan.
Complying with the safe harbor provisions of ERISA Section 404(c) requires meeting three specific conditions. Which of the following is not one of those three? A)Investment performance B)Communicating required information C)Investment selection D)Investment control
A)Investment performance The Section 404(c) safe harbor places limits on the responsibility of certain plan fiduciaries when the required conditions are met. There is no standard of investment performance. Plan participants must have the ability to make investment decisions in their account (control). There must be at least three different types of investments to choose from (selection). Certain information, such as accessibility to participant accounts by phone or online, is also a requirement.
Your client purchased 1,000 shares of ABC common stock on February 28, 2021. When did that purchase qualify for long-term capital gain or loss treatment? A)March 1, 2022 B)February 28, 2022 C)February 29, 2022 D)March 1, 2021
A)March 1, 2022 Long-term treatment applies when a sale is made more than 12 months after the purchase. The best way to compute this is to add one day to the purchase and then use that same date, 12 months in the future. Adding one day to February 28, 2021 is March 1, 2021. Twelve months later is March 1, 2022.
Which of the following individuals may not open a joint account? A)Parent and a minor B)Two spouses C)Three sisters D)Business colleagues
A)Parent and a minor Any 2 or more persons can have a joint account, but a minor is specifically excluded from the definition of a person.
Which of the following statements about S corporations is not correct? A)S corporation status offers greater opportunity for raising additional capital than do other forms of business structure. B)An S corporation may have only one class of stock. C)An S corporation may have no more than 100 shareholders. D)Stockholders of S corporations are taxed on the net profits of the corporation even if they do not receive taxable dividends.
A)S corporation status offers greater opportunity for raising additional capital than do other forms of business structure. S corporations are flow-through vehicles, so any earnings are taxable to shareholders, whether or not they are paid out as dividends. An S corporation may have no more than 100 shareholders and may issue only one class of stock, so its ability to raise large amounts of capital is rather limited.
A Schedule K-1 would not be used for tax reporting to the owners by which of the following business entities? A)Sole proprietorship B)Limited partnership C)LLC D)S corporation
A)Sole proprietorship Sole proprietorships generally complete Schedule C of the individual Form 1040. Legal entities that pass-through income or loss use the Schedule K-1 to indicate the amount of that income or the loss attributable to the individual shareholder/member/partner.
Which of the following offers the opportunity to realize a capital gain rather than ordinary income? A)Stock dividends B)Cash dividends C)Section 529 plans D)Deferred annuities
A)Stock dividends Stock dividends, unlike cash dividends, are not taxable in the year of receipt. Instead, they reduce the owner's cost basis and, when sold at a price above that cost basis, are treated as a capital gain rather than ordinary income. Deferred annuities never generate anything but ordinary income, and qualified withdrawals from Section 529 plans result in no taxation on the earnings. If they are not qualified, there is ordinary income tax plus a penalty. CASH DIVIDENDS HAVE NOTHING TO DO WITH CAPITAL GAIN / LOSS
Which of the following statements regarding investment risk is not correct? A)Systematic risk may be reduced or eliminated by effective portfolio diversification. B)Investors expect to earn a higher rate of return for assuming a higher level of risk. C)A stock's level of risk is a combination of market risk and diversifiable risk. D)The beta coefficient measures an individual stock's relative volatility to the market.
A)Systematic risk may be reduced or eliminated by effective portfolio diversification. Unsystematic (diversifiable) risk may be effectively managed through portfolio diversification. It is systematic risk where diversification has little effectiveness.
Which of these is an advantage of using a Coverdell ESA rather than a 529 plan to fund a child's future education? A)The Coverdell offers greater investment flexibility. B)Contributions to the Coverdell are eligible for the annual gift tax exclusion. C)The Coverdell allows for transfer of beneficiary. D)The Coverdell has greater tax advantages.
A)The Coverdell offers greater investment flexibility. A Coverdell ESA works similar to a self-directed IRA where stocks, bond, mutual funds, ETFs, and other investment vehicles are options. With a 529 plan, the donor is limited to whatever is available in the state plan chosen. Tax advantages might be better for the 529 plan because many states allow a portion of the contribution to be taken as a deduction or credit against state income taxes. Both allow for transfer to a new beneficiary as long as that individual is a member of the original beneficiary's family. In both cases, whatever is contributed to the program is treated as a completed gift and is eligible for the annual gift tax exclusion.
In the banking industry, the term POD refers to an account similar to the TOD designation used by broker-dealers. An old but sometimes still used term to describe this kind of account, is A)Totten trust. B)revocable trust. C)passbook savings account. D)demand deposit account (DDA).
A)Totten trust.
The president of a business entity opens an account in the name of the business. When determining the suitability of recommendations to the account, knowing the president's personal financial condition is necessary for each of the following forms of business structure except A)a C corporation. B)a sole proprietorship. C)an S corporation. D)an LLC
A)a C corporation. Only in the case of the C corporation are the income and losses of the investment account taxed at the corporate level rather than passed through to the owners.
All of the following are true about education funding plans except A)a beneficiary of an ESA who withdraws the funds for nonqualified expenses will be taxed on the entire amount of the withdrawal plus a 10% penalty B)proceeds in 529s may be withdrawn income-tax free only if used for qualified educational expenses. C)proceeds in ESAs may be withdrawn income tax free for qualified education expenses even if the child is under age 18 D)Section 529 plans allow a gift tax exclusion equal to five times the annual limit that may be repeated every 5 years
A)a beneficiary of an ESA who withdraws the funds for nonqualified expenses will be taxed on the entire amount of the withdrawal plus a 10% penalty The tax and 10% penalty is only levied against earnings since the contributions were made with after-tax dollars. ESAs may be used for any level of education, including elementary school where it is hoped that the student would be under age 18. In order to receive the favored tax treatment, the proceeds must be used to pay for qualified educational expenses. Section 529 plans have the unique 5-year front-loading feature.
A U.S. citizen owns stock in a Canadian company and receives dividends. The Canadian government withholds 15% of the dividends as a tax. As a result, the investor reports A)a tax credit on the investor's U.S. tax return. B)a reduction in the investor's ordinary income. C)a tax credit on the investor's Canadian tax return. D)a nonrecoverable loss on the investor's U.S. tax return.
A)a tax credit on the investor's U.S. tax return. An investor receives a credit for taxes withheld on investments by countries with which the United States has diplomatic relations; the tax credit directly decreases the investor's American tax liability.
Based on reports indicating a likely slowdown in economic activity, the portfolio manager of the UVW mutual fund has reduced the fund's exposure to equities and increased the cash. UVW is most likely A)an asset allocation fund. B)a balanced fund. C)a money market fund. D)a growth fund.
A)an asset allocation fund. Although most funds are able to adjust a portion of their portfolios, it is the asset allocation funds where this is the purpose of the fund. The manager's job is to allocate the fund's assets into and out of equity, debt, or cash as market conditions dictate.
Under ERISA, all of the following retirement plans must set standards for vesting, eligibility, and funding except A)deferred compensation plans B)profit-sharing plans C)Keogh plans D)corporate pension plans
A)deferred compensation plans Deferred compensation plans are not qualified plans and may be discriminatory. Keogh, profit-sharing, and corporate pension plans must meet set standards for vesting, eligibility, and funding under ERISA.
Among the reasons why a corporation might choose to utilize a deferred compensation plan for retirement planning would be A)employees who leave the company prior to retirement would not receive benefits B)current tax savings on money contributed to fund the plan C)compliance with ERISA D)the plans are nondiscriminatory
A)employees who leave the company prior to retirement would not receive benefits Deferred compensation plans are usually structured so that if the employee leaves prior to retirement or is terminated with cause, benefits are forfeited. These plans are discriminatory and there is no current tax saving, hence the term "deferred." As nonqualified plans, they do not have to comply with ERISA.
As with all investors, it is important that trusts have an investment policy statement (IPS). If the beneficiary of a trust requests that the trustee use trust assets to enter an order that is considered a prohibited transaction under the IPS, the trustee should A)follow the trust's IPS and refuse the order. B)amend the IPS and process the order. C)follow the beneficiary's instructions. D)contact the grantor of the trust
A)follow the trust's IPS and refuse the order. A trustee is the classic example of a fiduciary: one responsible for handling the assets of another person. Construction of the IPS for a trust is generally done with the consent of the grantor of the trust to make sure that the grantor's wishes are met. Therefore, it would be considered imprudent for the trustee to engage in any transaction specifically prohibited by the IPS.
A prospective client has been interviewing a number of investment advisers and wishes to see your firm's investment policy statement. Your IPS would probably include which of the following headings? Investment objectives Investment philosophy Investment selection criteria Monitoring procedures
ALL Although there are no rules requiring that an IA develop an investment policy statement, it is a recommended procedure. Each of these 4 items would be found in a typical IPS. Please note that the IPS would include the criteria for selecting investments, but not the listing of the actual investments themselves.
Which of the following are fiduciaries? Executor of an estate Administrator of a trust Custodian of an UGMA account Investment adviser representative granted with discretionary authority over the account
ALL Each of these persons is in a relationship of trust to the customer and is therefore a fiduciary.
One of your clients is discussing various options for funding his IRA. Current tax law would permit investing in which of the following vehicles? 1 Collectible stamps issued by the U.S. Postal Service 2 Gold or silver coins minted by the U.S. Treasury Department 3 Fixed annuities 4 REITs
All except Collectible stamps In general, investments in collectibles are not permitted in IRAs. The one major exception is U.S. gold and silver coins minted by the Treasury Department. Although some might object to placing an annuity into a tax-deferred plan because it is already tax deferred, there could be a good reason for its inclusion and, more important for this question, it is permitted.
A taxpayer has earned income of $25,000 in 2021. Contributions to that individual's IRA may be made on November 15, 2021. January 4, 2022. April 15, 2022. October 15, 2022 (if the automatic extension has been filed).
All except October 2022 Must be made on or before April 15th
Alpha formula
(Actual portfolio return - risk-free rate) - Beta*(Market return - risk-free rate)
A basic difference between a Section 457 plan established on behalf of a governmental entity and one established by a private tax-exempt organization is that 1 a governmental plan must hold its assets in trust or custodial accounts for the benefit of individual participants. 2 a tax-exempt plan participant does not have to include plan distributions in his or her taxable income. 3 a governmental plan cannot make a distribution before the participant attains age 72. 4 a tax-exempt plan's distributions are not eligible for a favorable lump-sum 10-year averaging treatment.
1 A governmental Section 457 plan must be funded—that is, it must hold plan assets in trusts or custodial accounts for the benefit of individual participants. Conversely, a tax-exempt (nongovernmental) Section 457 plan may not be funded.
To comply with the safe harbor requirements of Section 404(c) of ERISA, the trustee of a 401(k) plan must 1 offer plan participants at least three different investment alternatives 2 ensure that plan participants are insulated from control over their portfolios 3 allow plan participants to change their investment options no less frequently than quarterly 4 allow plan participants to purchase U.S. Treasury securities A)I and III B)I and IV C)II and IV D)II and III
1 & 3 The safe harbor requirements relieve the trustee of a 401(k) plan of liability if the plan participants have the ability to select from at least 3 different investments and are allowed to make selection changes no less frequently than quarterly.
One of your clients is in the process of forming a new business venture with a friend and is considering whether to operate as a general partnership or a C corporation. Among the advantages of operating as a general partnership are 1 ease of dissolution 2 ease of raising additional capital 3 flow-through of income or loss 4 limited liability
1 & 3 Unlike a C corporation, operating income or losses of a general partnership flow through directly to the partners. There are several easy ways to dissolve a partnership. However, they do not offer the limited liability protection of a corporation. The corporate form of business is generally the most suitable for raising additional capital.
Which of the following statements regarding an S corporation owner and an owner of an LLC are true? 1 Creditors have very limited recourse rights to the owners. 2 They may not be nonresident aliens. 3 They both are considered stockholders. 4 Both receive the tax benefit of owning flow-through entities.
1 & 4 Creditors don't have recourse to the owners of either entity unless the owners have specifically allowed it. Both are flow-through or conduit entities. Owners of S corporations are stockholders, whereas those in an LLC are members. Nonresident aliens may not own an S corporation
Which of the following may participate in a Keogh plan? 1 Self-employed doctor 2 Analyst who makes money giving speeches outside regular working hours 3 Individual with a full-time job who also has income from freelancing 4 Corporate executive who receives $5,000 in stock options from her corporation I only I and II I, II, and III I, II, III, and IV
1 2 3 A person with self-employment income may deduct contributions to a Keogh plan. Keogh plans are not available to corporations or their employees. That would make choice C the correct answer.
Which of the following is (are) true regarding qualified pension plans? 1 They must not discriminate. 2 They must have a vesting schedule. 3 They must be in writing. 4 Every month the employer must update the current status of all accounts.
1, 2, 3 An employer must update the status of all employees at least annually, not monthly.
Which of the following statements regarding IRAs are correct? 1 One may have both a Roth IRA and a traditional IRA, contributing the maximum to each one. 2 One may have both a Roth IRA and a Roth 401(k) contributing the maximum to each one. 3 Neither Roth IRAs nor Roth 401(k) plans have RMDs at age 73. 4 If one is a participant in a Roth 401(k) plan, the earnings limits are waived for opening a Roth IRA.
2 & 3 A Roth IRA and Roth 401(k) are two separate items, and maximum allowable contributions may be made to both. This is unlike the IRAs, where one can maintain both but the total contribution is the annual limit (in 2024 the annual limit is $7,000 with a $1,000 catch-up). Effective with SECURE 2.0 in 2024, Roth 401(k)s, just like Roth IRAs, do not have RMDs at any age (only inherited). Although one may participate in a Roth 401(k) without regard to AGI limits, that is not so with the Roth IRA
Which of the following statements regarding estates are correct? 1 Estate taxes are due on April 15 of the first year following the death of the deceased. 2 Estate taxes are due nine months after the date of death of the deceased. 3 Assets are valued based on their market value as of the date of death or, alternatively, six months later. 4 Assets are valued based on their cost or, alternatively, six months after the date of death.
2 & 3 Estate taxes are due, unless an extension has been obtained, no later than nine months after the date of death. For estate tax purposes, the executor (or administrator) may elect to use the values as of the date of death or those six months later (the alternative valuation date).
Which of the following business entities has an income tax filing due date (disregarding possible extensions) of March 15? 1 Sole proprietorship 2 Single-member LLC 3 Multiple-member LLC electing to be treated as a corporation 4 S corporation
3 & 4 For partnership returns (including LLCs with more than 1 member) and S corporation returns, the due date is March 15. One effect of this is that LLCs, partnerships, and S corporations all have the same filing deadline. For C corporations, the due date is the 15th day of the 4th month following the close of the corporation's year; this date is April 15 for a calendar-year filer.
As a rule, loans from a 401(k) plan must be repaid within how many years? A)20 B)10 C)15 D)5
5 years Most loans from a 401(k) plan are required to be repaid within 5 years. This rule does not apply to loans taken for a home purchase.
Using modern portfolio theory, one of your customers calculates the expected return of a stock at 15%. When explaining this to you, the customer asks you how much variation should be expected from this investment the majority of the time. You respond that 95% of the time, the returns should be within the range of a low of negative 7% and a high of 37%. This information was determined based on this stock having a standard deviation of A)7%. B)11%. C)22%. D)15%.
B)11%. A security will range within two standard deviations of its expected return 95% of the time. Given an expected return of 15%, a high end of the range of 37% means a deviation of 22% to the upside. A return at the low end of the range of −7% is a deviation of 22% to the downside. With a 95% expectation of two standard deviations being + or − 22%, the standard deviation of this stock is half of that, or 11%
The separate account subaccounts chosen by the purchaser of a variable life insurance policy have had outstanding performance over the past 15 years. There would generally be no tax implications in which of the following situations? A)The death benefit is paid B)A loan is taken equal to 95% of the policy's cash value C)The policy is surrendered D)There is a cash withdrawal in excess of the cost basis
B)A loan is taken equal to 95% of the policy's cash value Funds obtained from a policy loan are not considered taxable income (same as any loan - you owe the money). If the amount received at policy surrender is greater than the cost basis, the excess is taxed as ordinary income. The same is true with the withdrawal. Although the death benefit will always be free of income tax, it could be subject to estate tax.
In terms of being considered compensation for determining the allowable contribution to an IRA, receipt of which of the following would be included? A)Taxable interest income B)Alimony received as part of a divorce decree signed in 2018 C)Child support D)Deferred compensation
B)Alimony received as part of a divorce decree signed in 2018 For divorce decrees entered into before January 1,2019, court-ordered alimony is taxable to the payee (and tax deductible to the payor). Therefore, receiving it is considered compensation for purposes of an IRA contribution. Please note: Effective January 1, 2019, there are changes to the tax treatment of alimony for all divorce agreements entered on and after that date (no changes to those already in existence).
A QDRO is a judgment, decree, or order for a qualified retirement plan to pay child support, alimony, or marital property rights to a spouse, former spouse, child, or other dependent of a participant. The QDRO must contain certain specific information as stated in whose regulations? A)ERISA B)IRS C)NASAA D)DOL
B)IRS It is the IRS who states the QDRO must contain certain specific information, such as: the participant and each alternate payee's name and last known mailing address, and the amount or percentage of the participant's benefits to be paid to each alternate payee. This is not part of ERISA or the Department of Labor and, least of all, NASAA.
Which of the following statements regarding Section 529 plans is correct? A)Funds not used for qualified expenses by age 30 must be distributed or rolled over. B)Qualified expenses could include tuition for attendance at a foreign university. C)Residents of some states receive a deduction on their federal income tax returns. D)Qualified expenses would include all residence costs incurred by a full-time student.
B)Qualified expenses could include tuition for attendance at a foreign university. As of the date of this question, there are more than 400 institutions of higher learning located outside of the United States where Section 529 plans may be used to pay qualified expenses. The expense for room and board (residence cost) qualifies only to the extent that it isn't more than the greater of the following two amounts: 1 The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student 2 The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution It is the Coverdell ESA that has the age 30 requirement and some states offer deduction on the state income tax return, not the federal one.
Agatha has an account with her Aunt Sally, which is registered as TIC. If Sally predeceases Agatha, the assets in the account go to A)the person designated under the laws of escheat in her state. B)Sally's estate. C)Agatha. D)Sally's spouse.
B)Sally's estate. When an account is opened as tenants in common (TIC), upon the death of one of the cotenants, that individual's share now becomes part of the deceased's estate. It might be that Sally's spouse or Agatha are beneficiaries named in Sally's will, but we don't know that.
Tim earns $30,000 at his employment and is not offered a pension plan. His spouse is not currently employed. If the year in question has a maximum IRA contribution of $6,500, what is the best way to set up an IRA to give maximum retirement benefits? A)Set up one IRA for $6,500 or 100% of earned income, whichever is less. B)Set up separate IRAs for $6,500 each. C)Set up one joint IRA for $13,000. D)Set up separate IRAs totaling $13,000.
B)Set up separate IRAs for $6,500 each. A one-worker couple can open a spousal IRA. Using the contribution maximum specified in the question ($6,500), this type of arrangement allows the contribution of a total of $13,000 to the two accounts with no more than $6,500 in either account. Selecting separate accounts totaling $13,000 could imply that one account could exceed $6,500 while the other would be less. IRAs are always individual accounts (the I in IRA). The spousal IRA allows contributions on behalf of a nonworking spouse.
A married couple wishes to open an account at your firm. Which choice of registration would you recommend if they insist that no trading be done without the consent of both of them? A)Tenants with right of survivorship B)Tenants by the entirety C)Joint tenancy D)Tenants in commo
B)Tenants by the entirety Tenants by the entirety (TE) is unique in that it is the only common form of account registration requiring the consent of both parties prior to any activity taking place in the account. With the other forms, either party to the account can initiate trading activity.
A customer and his spouse own shares in the ABC Fund as joint tenants with rights of survivorship. If the customer dies, what happens to the shares in the account? A)The account would be frozen until the estate was settled. B)The spouse would own all the shares. C)Ownership of the shares must be determined by probate court. D)Half the shares would belong to the spouse, and the remaining half would be distributed to the customer's estate.
B)The spouse would own all the shares. In a JTWROS account, securities pass to the surviving owner. The account does not have to be frozen but can continue to enter orders.
If a trust has been established under which the father is to receive income for life and his son is to receive the trust principal on the father's death, which of the following statements is true? A)The trustee does not need to keep records of the income distributions to the father. B)The trustee is not required to notify the son when an income distribution is made to the father. C)The trustee must notify the son each time an income distribution is made to the father. D)The trustee can withhold income distributions to the father to preserve principal to the son.
B)The trustee is not required to notify the son when an income distribution is made to the father. It is not required that the trust's remainder beneficiary be notified when income is distributed from the trust. The trustee must report distributions from the trust for federal income tax purposes. The trustee must follow the terms of the trust, making distributions as required by the trust instrument.
If a client wanted an investment that would eliminate interest risk as to principal, you would recommend A)a 91-day Treasury bill B)a bank-insured certificate of deposit C)preferred stock D) TIPS
B)a bank-insured certificate of deposit Because bank-insured CDs are nonnegotiable (we're not discussing the $100k minimum jumbos), there is no market fluctuation caused by changes in interest rates as with marketable securities. If you invest $10,000, you will always get back that $10,000 whenever you cash in the CD, regardless of current interest rates. This is true even when cashing in early. There may be a prepayment penalty, but that is considered separate from interest rate risk. TIPS offer inflation protection and preferred stock is interest rate sensitive in the same manner as a bond. The 91-day T-bill doesn't have much interest rate risk, but if an investor was to attempt to liquidate the holding prior to maturity and interest rates increased, there could be a loss.
The term earned income would include A)the death benefit from a variable annuity policy. B)a bonus paid as a result of your division exceeding its goals. C)alimony received as part of a divorce decree executed on January 15, 2019. D)the death benefit from a variable life insurance policy.
B)a bonus paid as a result of your division exceeding its goals. The IRS defines earned income as wages, salaries, tips, and other taxable employee pay, such as bonuses. The death benefit from a variable annuity policy is taxed as ordinary income but is not earned. The death benefit from a variable life insurance policy is generally free of income tax, so it cannot be earned income. Under the TCJA of 2017, alimony received from a divorce decree dated January 1, 2019 or later is not earned income.
Investors looking to minimize the effects of taxation on their investments would probably receive the least benefit from A)an S&P 500 Index fund. B)a corporate bond. C)a growth stock. D)an apartment building.
B)a corporate bond. Investors receive interest income from corporate bonds. That income is fully taxable at ordinary income rates. Real estate ownership has certain tax benefits, such as depreciation and a deduction for operating expenses. Index funds are known for their high tax efficiency, and investors in growth stocks anticipate long-term capital gains, which are taxed at a lower rate than ordinary income.
One way in which taxation of gifts differs from taxation of estates is A)gifts can take advantage of the marital deduction while estates cannot. B)a gift of securities carries the donor's cost basis, while inherited securities receive a stepped-up basis. C)the tax rates on gifts is lower than for estates. D)the lifetime exclusion for gifts exceeds that for estates.
B)a gift of securities carries the donor's cost basis, while inherited securities receive a stepped-up basis. A primary difference between gift and estate taxation is the cost basis of the acquired asset. In the case of a gift, it is the donor's basis, while in the case of an inheritance, it is the cost at the date of death and is always considered long term. Both have the unlimited marital deduction, and the lifetime exclusion ($13.61 in 2024) is the same for both. Both follow the same tax rate table.
The alternative minimum tax (AMT) is assessed against A)low annual income earners and allows special deductions for them to be taken. B)high annual income earners and disallows some deductions and exemptions used to calculate adjusted gross income. C)high annual income earners and gives them special deductions to take that lower income earners do not get. D)all self-employed individuals
B)high annual income earners and disallows some deductions and exemptions used to calculate adjusted gross income. The alternative minimum tax (AMT) is assessed against high annual income earners. When calculating adjusted gross income (AGI), some deductions and exemptions are disallowed, resulting in a higher taxable AGI. In the real world, it is not only those with high incomes that are caught by the AMT, but the exam is not likely to go that deep.
The alternative minimum tax is designed to ensure that certain high-income taxpayers do not avoid all income tax through the use of various tax preference items. Those preference items are added back to the taxpayer's ordinary income on IRS Form 6251 and would include A)straight-line depreciation taken on investment real estate. B)interest received from specified private-purpose municipal revenue bonds. C)intangible drilling costs in connection with an oil drilling program. D)long-term capital gains in excess of $3,000 annually.
B)interest received from specified private-purpose municipal revenue bonds. The Internal Revenue Code provides that interest on specified private activity bonds is an item of tax preference. Therefore, this interest must be added to a taxpayer's regular taxable income in order to compute the taxpayer's AMT income. Read the choices carefully. It is accelerated (not straight line) depreciation and excess intangible drilling costs that are preference items. In the real world, it is not only those with high incomes that are caught by the AMT, but the exam is not likely to go that deep.
A taxpayer opened a Roth IRA seven years ago. Last year, the individual opened a new Roth IRA at your brokerage firm. The individual is 60 years of age and liquidates $3,000 from the new Roth IRA. $1,000 of the withdrawal represents earnings in the account. The tax consequence of this withdrawal is A)tax plus the 10% penalty is due on the $1,000 from earnings. B)no tax is due. C)tax is due on the $1,000 from earnings. D)tax is due on the entire $3,000 withdrawal.
B)no tax is due. Withdrawals from a Roth IRA are tax free when two conditions are met. The first is that the taxpayer must have a Roth IRA that is at least five years old. That condition is met here because the first Roth IRA was opened seven years ago. The second condition is that the taxpayer must be at least 59½ years of age. Ours is 60, so that condition is met. Having met both conditions, the entire withdrawal is tax free.
One of your clients recently came into an inheritance. Initially, some of the money was used to pay off credit card debt. Now, with some of the remainder, this client wants your help in determining how much should be invested today so that funds for college education will be available in 14 years. The most appropriate calculation to assist this client is A)internal rate of return. B)present value. C)net present value. D)future value.
B)present value. The giveaway clue in the question is the word today. Today is in the present, and when we know what we'd like to have in the future (14 years from now), the present value calculation shows us the required lump-sum deposit. NPV is used to determine if a security is priced correctly, and IRR is commonly used to report past performance.
One of your clients dies. You could legally take instructions regarding the individual's estate from A)a CPA who prepared the deceased's tax return. B)the administrator in intestacy. C)the spouse of the deceased. D)a person with durable power of attorney.
B)the administrator in intestacy. If an individual dies without a will (intestate), the state will appoint an administrator in intestacy who, just as an executor for one who had a will, has control over the deceased's assets. A durable power of attorney, just like any other power, expires upon the death of either party to the power.
A significant portion of ERISA deals with fiduciary responsibility. Which of the following would be considered a prohibited transaction? A)The purchase of art or antiques for the plan B)Using plan assets to build a collection of rare automobiles C)Investing more than 50% of the plan's assets in the company's stock D)The fiduciary selling 1,000 shares of a personally owned stock to the plan
Be careful. There is a difference between a prohibited transaction (the subject of this question) and a prohibited investment. Self-dealing by the plan fiduciary, such as buying securities from or selling securities to the plan, is a prohibited transaction. The other choices here represent investments that are prohibited. Normally, the decision of the plan fiduciary to own company stock in the company's ERISA qualified plan is limited to 10% of the plan's total assets.
A complex trust has the following income for the year: $1,500 in taxable interest, $2,000 in dividends (reinvested in the stock), and $3,000 in tax-exempt interest. In addition, the portfolio realized $3,500 in capital gains that were reinvested in the corpus. What is the distributable net income (DNI) for the trust? A)$1,500 B)$10,000 C)$6,500 D)$4,500
C)$6,500 All investment income, regardless of source, will be considered DNI and will be included in the taxable income calculation to the trust unless distributed. That portion of the DNI representing tax-exempt interest maintains its tax-free status. Reinvested capital gains are not part of a trust's DNI. The computation is: $1,500 in taxable interest + $2,000 in dividends (reinvestment means nothing here) + $3,000 in tax-exempt interest. This is a total of $6,500 of DNI. When distributed, only $3,500 will be taxable.
Which of the following statements regarding risk diversification is least accurate? A)There is a tradeoff between risk and return. B)Systematic risk or market risk results from unexpected changes in economic factors. C)Diversification can successfully remove all portfolio risk. D)Unsystematic risk is company-specific risk that is particular to an individual company.
C)Diversification can successfully remove all portfolio risk. Diversification cannot remove all the risk. There are certain things, such as economic news, that tend to impact the whole market. The risk that can be removed is known as the specific or unsystematic risk, and the risk that cannot be diversified away is market or systematic risk.
One of your customers purchased a variable life insurance contract through your firm. After 14 years, he had deposited $15,000 in premiums, and his death benefit had grown to $80,000. Shortly after taking out a loan against cash value of $10,000, he was killed in an automobile accident. What will be the tax consequences of this situation to the death benefit? A)His beneficiary must pay taxes on the amount of the death benefit that is over and above the cost base of $15,000. B)The first $15,000 is tax free with the excess being treated as a long-term capital gain. C)His beneficiary need not pay taxes on the death benefit. D)His beneficiary must pay taxes on the amount of the death benefit that is over and above the cost base of $15,000 plus the unpaid loan.
C)His beneficiary need not pay taxes on the death benefit. A death benefit payable on a life insurance policy or contract is not subject to taxation. The insurance company will deduct the balance of the $10,000 loan before it releases the death benefit to the beneficiary, but that does not affect the tax consequences.
Many investment advisers prepare an investment policy statement (IPS) when counseling their clients. Which of the following should least likely be included as a constraint in an investment policy statement? A)Asset classes the client specifically forbids or limits based on past experience B)Any unique needs or preferences an investor may have C)How the funds are spent after being withdrawn from the portfolio D)Constraints put on investment activities by regulatory agencies
C)How the funds are spent after being withdrawn from the portfolio How funds are spent after withdrawal would not be a constraint of an IPS. Anything that might be an obstacle to reaching the goals, such as regulatory restrictions and specific investor preferences, are considered constraints.
An investor is analyzing the impact of the specific type of risk affecting bonds because the fixed cash payments that they deliver may become less valuable. What risk is this? A)Systematic risk B)Credit risk C)Inflation risk D)Interest rate risk
C)Inflation risk This is an example of a question where careful reading is necessary. Indeed, every one of the choices is a risk faced by bond investors, but only one specifically answers the question. When the semiannual interest payments 10 or 20 years from now don't buy as much as they would today, that is inflation or purchasing power risk. That falls into the category of systematic risk. On the exam, when one choice is specific and the other is broad, go with the specific one. Interest rate risk is another systematic risk, but it indirectly relates to the question. Credit risk is an unsystematic risk and has nothing to do with the issue raised here
If a high-income taxpayer is subject to the AMT, which of the following preference items must be added to adjusted gross income to calculate his tax liability? A)Dividends paid on preferred stock B)Interest on a general obligation municipal bond C)Interest on a private-purpose municipal bond D)Distributions from a corporate bond mutual fund
C)Interest on a private-purpose municipal bond The interest received on private-purpose municipal bonds is considered a tax preference item for the AMT. The interest on GO bonds and income received on corporate securities are never considered preference items under the AMT. In the real world, it is not only those with high incomes that are caught by the AMT, but the exam is not likely to go that deep.
Which of the following does not benefit both the employee and the employer? A) SEP-IRA B)SERP C)Traditional IRA D)Defined benefit plan
C)Traditional IRA There is no employee/employer relationship in a traditional (or Roth) IRA. A SEP-IRA is different in that the employer makes the contribution, gets the tax deduction, and the employee's account is enriched by that contribution. The same is true for the defined benefit plan and the SERP. A supplemental executive retirement plan is a nonqualified plan designed to provide additional retirement benefits limited to a select group of management or highly-compensated employees.
One of the benefits of owning a home is the tax treatment of a sale of a primary residence. Under current IRS regulations, A)a married couple is permitted to exclude the first $500,000 of gain as long as the proceeds are reinvested in another home. B)a married couple is permitted to exclude the first $250,000 of gain. C)a married couple is permitted to exclude the first $500,000 of gain. D)all gains from the sale of a primary residence are excluded from taxation
C)a married couple is permitted to exclude the first $500,000 of gain. Years ago, the gain was deferred if the proceeds were reinvested in a new home, but that no longer applies.
A registered broker-dealer would not be able to open an account for A)two unrelated individuals. B)the CEO of a company whose stock is NYSE-traded. C)a person deemed mentally incompetent. D)the estate of a deceased individual.
C)a person deemed mentally incompetent. A broker-dealer can only open an account with a legal person. Those deemed mentally incompetent are not persons under the law. Deceased individuals are not persons either, but their estate is so an account may be opened in the name of the estate. Although the CEO's account would have to be monitored for any hint of insider trading, one's position in a listed company is not an impediment to opening a brokerage account. There is no legal requirement that the owners of a joint account be related; friends are fine as are business partners.
The benefits of structuring a business as a general partnership include A)longevity. B)the general partners being liable only to the extent of their investments. C)avoidance of taxation at the entity level so the partners are not taxed twice. D)the ability to raise large sums of money
C)avoidance of taxation at the entity level so the partners are not taxed twice. General partnerships file a Form 1065 and pay no tax. Instead, each partner's share of the income is reported on Schedule K-1, making for a single rather than a double layer of tax. On the downside is that general partners have unlimited liability for the debts of the business. Unlike corporations, where there is no scheduled termination date, in general, partnerships have a dissolution date or a specified event described that will lead to termination. It is the C corporation structure that lends itself to raising large sums of money.
A customer wishing to avoid probate could do so by all of the following methods except A)titling the account TOD. B)titling the account JTWROS. C)designating the beneficiary of the account in the will. D)using a properly designed trust.
C)designating the beneficiary of the account in the will. One of the purposes of the probate process is to ensure that the provisions of the will are upheld. In a JTWROS account, the assets automatically go to the survivor(s), so probate is not necessary. A transfer on death (TOD) account accomplishes the same purpose. One of the most common reasons for placing assets into a trust is to avowing probate.
An employer whose 401(k) plan complies with ERISA Section 404(c) is placing investment risk with A)the Securities and Exchange Commission. B)the plan fiduciary C)the plan participant D)the Internal Revenue Service
C)the plan participant In a 401(k) plan, a plan sponsor can shift investment risk to the employee by complying with ERISA Section 404(c) rules.
One of your clients will be separating from his current employer and asks you for your suggestion as to what should be done with the assets in his contributory 401(k) plan. The plan documents indicate that plan assets must be distributed upon termination. Given the following choices, your recommendation would be to A)take the cash and put it into a managed account B)reconsider the decision to separate C)use a direct rollover to have the assets placed into a rollover IRA D)take the distribution in cash and rollover the assets into an IRA within 60 days
C)use a direct rollover to have the assets placed into a rollover IRA Most would agree that the best plan is to preserve the tax deferral as long as possible. A direct rollover into a rollover IRA is preferable to taking the cash first because there is no 20% withholding, so all the money goes to work immediately.
Sally Sherman purchased 100 shares of Chocolate Manufacturers Corporation (CMC) for $19 per share on February 12. She received a 10% stock dividend on May 18. She sold all of her CMC at $13 per share in June of the same year. What were her tax results? A)$575 long-term loss B)$575 long-term gain, $105 short-term loss C)$575 short-term loss; $105 long-term gain D)$470 short-term loss
D)$470 short-term loss Sally paid $1,900 for 100 shares and sold 110 shares for $1,430 (13 at 110). Because the transactions all took place in less than a year, the transaction was a short-term loss.
One of your customers would like to be able to reduce current taxable income. Contributions to which of the following would be an appropriate recommendation? A)A Roth IRA B)A deferred annuity C)A Section 529 plan for grandchildren D)A donor advised fund
D)A donor advised fund A donor-advised fund operates as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. As such, contributions to the fund will generate a current tax deduction for the customer. Section 529 plans offer tax-deferred growth but not a current tax deduction. Roth IRAs offer the potential of tax-free income, but current contributions are not tax-deductible. A deferred annuity means the earnings in the account are deferred until the money is withdrawn. Once again, there is no current tax benefit. Remember, every annuity on the exam is nonqualified unless something in the question indicates otherwise.
If an investor received a lump-sum distribution from a 401(k) plan when he left his job, he may roll over his account into an IRA within 60 days transfer his account without taking possession of the money keep the funds and pay ordinary income tax invest in a tax-exempt municipal bond fund to avoid paying tax A)III and IV B)I and II C)II and IV D)I and III
D)I and III Because the client has already received the lump sum, he may either roll the money into an IRA account within 60 days, or retain the money and pay income tax (and possibly a penalty) on it. Any amount the client does not roll over will be taxed as income, even if invested in tax-exempt bonds. A direct custodian-to-custodian transfer is not permitted because the client has already received the distribution.
Which of the following statements is most accurate regarding employer-sponsored retirement plans? A)The employee in a defined benefit plan bears the shortfall risk. B)In a defined benefit plan, the payments provided are related to the contributions made and investment performance achieved. C)In a defined contribution plan, the payments received are related to the number of years of service and the individual's final salary. D)In a defined benefit plan, the client can have some reasonable certainty about the amount of income that will be received in retirement.
D)In a defined benefit plan, the client can have some reasonable certainty about the amount of income that will be received in retirement. In a defined benefit plan, the client can have some reasonable certainty about the amount of income that will be received in retirement. The investment risk is borne by the employer rather than the employee. That is the case with the defined contribution plan.
If your 39-year-old customer is the sole owner of a business, earns $260,000 per year, and makes the maximum contribution to a Keogh plan, how much money can be contributed to an IRA in 2024? A)The greater of the Keogh maximum or the IRA maximum B)$0 C)The lesser of the Keogh maximum or the IRA maximum D)The current indexed maximum
D)The current indexed maximum The maximum contribution is the lesser of 100% earned income or the year's indexed maximum. In this case, the amount of the Keogh contribution is irrelevant. Under current tax law, the IRA contribution would not be tax deductible because the customer's earnings are way over the limit at which a taxpayer is covered by an employer-sponsored plan, but that does not affect the ability to contribute the maximum amount to the IRA. The maximums for a Keogh contribution are never tested, but they are about 10 times the maximum IRA limit.
A wealthy individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed? A)The original value plus any appreciation passes to the beneficiaries but is subject to gift tax. B)No tax is due if the grantor should die during the term of the trust. C)The original value plus any appreciation passes to the beneficiaries and is taxed as ordinary income. D)The original value plus any appreciation is taxed as part of the grantor's estate.
D)The original value plus any appreciation is taxed as part of the grantor's estate. One of the risks in setting up a GRAT is that if the grantor dies during the term of the trust (usually 3-10 years), the assets put in the GRAT, plus any appreciation, are included in her estate
Keisha has three married children, each with children of their own. She wishes to leave equal shares of her estate to each of her children. What happens if one of those children dies before Keisha? A)The estate is divided on a per capita basis. B)The estate is divided equally among the two surviving children and the children of the deceased child. C)The estate is divided equally among the two surviving children. D)The share belonging to the deceased child is distributed per stirpes.
D)The share belonging to the deceased child is distributed per stirpes. Unless specified otherwise, assets in an estate are distributed per stirpes (sometimes called in stirpes). Stirpes is a Latin word meaning branches. In this context, it is used to determine how the next generation receives a share in an estate when the parent predeceases the grandparent. As an example, if Keisha had child A, child B, and child C and if child C died having two living children, the estate would be divided as follows: child A would get ⅓, child B would get ⅓, and the two children of child C would each receive ¹⁄₆ (each receiving half of child C's portion). If you selected, "The estate is divided equally among the two surviving children and the children of the deceased child," that would mean that everyone would receive ¼, and that is not the way it is done.
Under which of the following circumstances would a premature distribution from a traditional IRA be exempt from the premature distribution penalty? A)When the account is fully funded with nondeductible contributions B)A distribution taken at age 55 if the owner is retired C)A distribution taken to satisfy the terms of a court-ordered property settlement D)When the distribution is paid in equal annual amounts over the owner's life
D)When the distribution is paid in equal annual amounts over the owner's life A distribution from an IRA taken in equal annual amounts over the owner's life is not subject to the 10% premature distribution penalty even if started before age 59½. This is one of the exceptions that apply to IRAs. The exception for qualified domestic relations orders (QDROs) and for retirement at age 55 apply to employer-sponsored plans but not to IRAs.
For purposes of the maximum allowable annual contribution, an individual would have to aggregate contributions made to A)a 401(k) and a Roth IRA. B)a 403(b) and a 457. C)a 401(k) and a 457. D)a 401(k) and a 403(b).
D)a 401(k) and a 403(b). Disregarding the catch-up provision for those age 50 and older, the maximum annual contribution in 2023 for the employer-sponsored plans is $22,500 (never tested). An individual covered by a 401(k) or a 403(b) may contribute that plus another $22,500 to the 457. Likewise, contributing to an employer-sponsored plan does not affect the Roth IRA limit. What is tested is knowing that maintaining a 401(k) and a 403(b) is similar to maintaining a Traditional and Roth IRA. The maximum is not doubled; it is aggregated.
Mary teaches physics at the local high school and makes about $70,000 per year. She could maximize her annual retirement savings by participating in A)an employer-funded 401(k) plan. B)a 403(b) plan and an IRA. C)a 403(b) plan. D)a 403(b) and a 457 plan.
D)a 403(b) and a 457 plan. Employees of public schools can legally maintain both a 403(b) plan and a 457 plan. In 2023, if both plan limits are contributed, that can be $45,000 ($60,000 if Mary is 50 or older and uses the $7,500 catch-up provision available with both plans). Remember, the exact numbers are never tested on the exam; we are using them to show your the concept. A 401(k) plan is not generally available for public sector employees.
An individual opens an account with your firm. She tells you that upon her death, she wants any assets in the account to be divided equally among her three children. She also wants the ability to change the allocation in the event that conditions change and one of the children is in greater need than the others, but she does not want to incur any significant legal expense. You would suggest that the account be opened A)as a joint account with tenants in common. B)under a discretionary power. C)as a joint account with right of survivorship. D)as an individual TOD account.
D)as an individual TOD account. TOD, the term used for transfer on death, will allow this client to fulfill her wishes.
Mrs. Beech, age 52, as the sole survivor of her mother, recently inherited a traditional IRA, among other assets. As a result, Mrs. Beech would most likely A)do a rollover of the funds into her own IRA. B)take the cash now and avoid both the 10% penalty and income taxes. C)leave the funds in her mother's IRA, because she is not yet 59½ D)cash out the IRA following the 10-year rule.
D)cash out the IRA following the 10-year rule. When an IRA is inherited from someone other than a spouse, there are basically two options. The most common is to take the funds over a 10-year period. There is no 10% tax penalty regardless of the age of the beneficiary, and the taxes are spread out over the withdrawal period. The other choice is to take the entire amount as a lump sum. Although that also avoids the 10% penalty, income taxes are due on the entire amount. It is only in the case of a spousal beneficiary where the options are to continue the IRA or roll it over.
You have a client who was divorced three years ago, maintains a home, and has custody of the children. More than likely, the most advantageous tax filing status for your client is A)divorced parent. B)single. C)joint. D)head of household
D)head of household When qualifying for head of household status (the technical qualifications are beyond the exam), the individual has the lowest tax burden. There is no such status as "divorced parent," and one cannot file jointly unless married. Filing as a single carries the highest tax burden.
An investor would have to pay the alternative minimum tax when A)the investor's capital gains exceed 10% of total income. B)the investor has received income from a limited partnership. C)there are tax-preference items reported on the tax return. D)it exceeds the investor's regular income tax.
D)it exceeds the investor's regular income tax. A taxpayer must pay the alternative minimum tax (AMT) in any year that it exceeds regular tax liability. Tax-preference items are re-input in figuring the AMT, but the AMT is paid only if that amount is higher than the regular income tax.
When comparing the tax treatment of C corporations, S corporations, and LLCs, it would be correct to state that A)all three have the same tax filing date. B)registered personnel opening a brokerage account for any of these would follow similar suitability procedures. C)only the C and S corporations offer the benefit of flow-through. D)the C corporation is the only one that pays taxes.
D)the C corporation is the only one that pays taxes. Only the C corporation is a separately taxed entity; the income (or loss) from an S corporation or LLC flows-through to the shareholders/members. The tax filing dates for the two flow-through entities is the same, generally March 15. The tax filing date for the C corporation is the 15th day of the fourth month after the end of the fiscal year (April 15 for a calendar year filer). The suitability for the S corporation and the LLC generally looks through to the individual owners, but that is not the case with the C corporation.
The federal legislation that requires broker-dealers to verify the identity of any person opening an account is A)the Insider Trading and Securities Fraud Enforcement Act of 1988. B)the Uniform Securities Act of 1956. C)the Securities Exchange Act of 1934. D)the USA PATRIOT Act of 2001.
D)the USA PATRIOT Act of 2001. The USA PATRIOT Act (the full title is Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism) requires firms to obtain identifying information on each new customer, verify the identity of each new customer, maintain records relating to identity verification, and determine if any new customer appears on a list of known or suspected terrorist groups compiled by the Office of Foreign Assets Control (OFAC). This is accomplished through the customer identification program (CIP).
The basis of an asset received from a decedent's estate is referred to as a stepped-up basis. This means that the asset's basis is generally A)the amount the decedent originally paid for the asset. B)the fair market value of the asset on the day the decedent acquired it C)the amount the recipient ultimately sells the asset for. D)the fair market value of the asset on the day the decedent died.
D)the fair market value of the asset on the day the decedent died. Generally, a taxpayer's basis in an asset is the amount the taxpayer paid for the asset. When an asset is acquired by inheritance, however, the asset's basis is generally the fair market value of the asset on the date of the decedent's death (or six months after the date of death if the estate elects the alternate valuation date). Because this value is often higher than the price the decedent originally paid for the asset, this kind of basis is called a stepped-up basis.
Although there is no specific rule requiring it, most qualified plans have an investment policy statement. For those plans that do have an IPS, it would include all of the following information except A)how the plan measures investment performance B)the schedule for future needs of the plan C)investment parameters to be followed by the portfolio managers D)the information in the summary plan document specified by the Department of Labor
D)the information in the summary plan document specified by the Department of Labor Under the rules of the Department of Labor (DOL), one of the most important documents that participants are entitled to receive automatically when becoming a participant of an ERISA-covered retirement plan, is a summary of the plan, called the Summary Plan Description or SPD. The plan administrator is legally obligated to provide to participants, free of charge, the SPD. The Summary Plan Description is an important document that tells participants what the plan provides and how it operates. It provides information on when an employee can begin to participate in the plan, how service and benefits are calculated, when benefits become vested, when and in what form benefits are paid, and how to file a claim for benefits. However, it has nothing to do with the investment policies that will be followed by the plan's advisers. That information, such as what is shown in the other choices, is found in the IPS.
If three individuals have a tenants in common account with a firm and one individual dies, then A)the account must be liquidated and the proceeds split evenly among the two survivors and the decedent's estate. B)the account is converted to joint with right of survivorship. C)trading is discontinued until the executor names a replacement for the deceased. D)the two survivors continue as co-tenants with the decedent's estate.
D)the two survivors continue as co-tenants with the decedent's estate. In the case of a TIC account, the decedent's estate becomes a tenant in common with the survivors.
A 78-year-old retiree has a $100,000 CD maturing and is dissatisfied with current yields on CDs. Aside from Social Security and a monthly pension, the $100,000 is his total liquid net worth. The agent recommends investing the funds in a single premium immediate variable annuity and allocating funds to the separate account as follows: Medical Technology − $10,000 High Yield Corporate − $40,000 Growth & Income − $50,000 The agent's recommendation is A)suitable because it appears probable to increase the value of his holdings, as well as to generate increased income B)suitable, provided the customer agrees with the recommendation C)unsuitable primarily because of the customer's probable liquidity needs D)unsuitable primarily because of the customer's age, objectives, and risk tolerance
D)unsuitable primarily because of the customer's age, objectives, and risk tolerance With half of the investment allocated to medical technology and high-yield separate accounts, which carry a higher risk, the allocation seems unsuitable for a 78-year-old needing this monthly income.
Expressed as a formula, book value per share is:
Tangible assets - liabilities - par value of preferred shares of common stock outstanding=book value per share Book value reflects the theoretical liquidating value of the company, not its intrinsic value. Fixed assets are shown at actual cost (the original purchase price) minus the accumulated depreciation; their actual value may be higher or lower.
Your client purchases 100 shares of XYZ Electric Auto Company on the assumption that rising fuel costs will create more interest in this more efficient means of transportation. If he is wrong, the resulting drop in the market price of that stock would be due to A)money-rate risk B)purchasing power risk C)business risk D)market risk
This question refers to a client who is investing in the success of a specific company. The failure of this company does not mean that all securities will be affected; therefore, he is not subjected to market risk. The failure of XYZ would be due to the fundamentals of the company itself and considered business risk.
