1. Which of the following are characteristics of Stock Bonus Plans? a. Protect a company from hostile takeovers b. Provide a market for the owners closely held shares of stock c. Provide a tax advantage to employees through Net Unrealized Appreciation d. Provide tax deductions while having no effect on cash flow

1. i and ii only

2. i, iii and iv only

3. ii, iii, and iv only

4. All of the above

ANSWER _________

2. Which of the following statements regarding Stock Bonus Plans is NOT true? a. Stock Bonus Plans allow for the current deductibility of non-cash contributions. b. The required repurchase option for a stock bonus plan can create potential cash flow

issues in the future. c. Stock Bonus Plans are generally as cost efficient to operate as profit sharing plans or

money purchase plans. d. The eligibility for a Stock Bonus Plan could be age 20 and 6 months of service.

ANSWER ________

3. Which of the following statements about Stock Bonus Plans is NOT true? a. A CODA can be attached to a Stock Bonus Plan. b. Participants of a Stock Bonus Plan must have the right to demand employer securities

on plan distributions. c. Stock Bonus Plans have a deductible contribution limit of 25% of plan compensation.

d. None of the above are false.

ANSWER ________

4. John works for IBM, which is a publicly traded company that sponsors a Stock Bonus Plan. Which of the following statements is NOT true regarding the plan?

1. If John has worked for IBM for less than three years, he is permitted to diversify half of the employer contributions made in IBM stock.

2. John is permitted to vote the shares of IBM within his account.

3. Upon termination, John must be given the right to receive IBM stock held in the plan as

   part of his distribution.

4. If the distribution of IBM stock is made to John in installment payments over two years,

   then the fair market value of all employer securities distributed will be taxable as ordinary income.

ANSWER ________

5. Colin receives a lump-sum distribution of 1,000 shares of employer stock from his Stock Bonus Plan in Year 1, worth $140,000. The Net Unrealized Appreciation (NUA) for the stock is $110,000 at the time of the distribution. Colin sells half of the shares for $100,000 four years after he received it as a distribution. How much is Colins capital gain?

a. $55,000

b. $65,000

c. $75,000

d. $85,000

ANSWER ______

6. What percentage of company stock must the ESOP own after a stock purchase in order for the seller to obtain non-recognition of gain treatment?

a. 85%

b. 50%

c. 30%

d. 25%

ANSWER _______

7. In order to qualify for non-recognition of gain treatment, which of the following would be a qualified replacement security?

a. S&P 500 index fund b. Porsche Automobile Holding American Depository Receipt (ADR)

c. UPS common stock d. Louisiana general obligation bonds

ANSWER _______

8. Which of the following statements are correct regarding qualifying for non-recognition of gain treatment on the sale of a business interest to an ESOP?

i. The corporation establishing the ESOP must have no class of stock that is tradeable on an established securities market. ii. The seller must have owned the stock for at least 2 years prior to the sale.

A) I only B) ii only C) Both i and ii

D) Neither i nor ii

9. Which of the following statements are correct regarding diversification requirements for participants in an ESOP?

a. Participants must be at least 55 years old. b. Participants must have been in the plan for at least 15 years. c. Up to 50% of a participants ESOP balance can be diversified in the first year of the qualification election period.

d. None of the above.

ANSWER _______