University of Oxford Math Accounting Questions

1.Baily owns and operates Ben’s Red Truck Shop (BRT), which is a sole proprietorship. She has selfemployment income of $150,000. How much self-employment tax does she owe ?
$21,092.
$21,194.
$22,194.
$2 2,950.
Answer: $21,092
Explanation:
MEDICARE TAX RATE
Employer: 1.45%
Employee: 1.45%
Therefore, a self-employed worker will be taxed 1.45% + 1.45% = 2.9%
The total self-employment tax rate is 12.4%.
Therefore, 12.4% + 2.9% = 15.3%
Baily (self-employed) having net income of exactly $150,000
Self-employment tax rate $150,000* 92.35% =$138,525
The security wage base $137,700
$138,525*15.3%= $21,194.325
Social security tax = Lower of 137700 or 12.4 %
= 137,700* 12.4 %
= $ 17074.8
$137,700*2.9%= $4,017.23
$4,017.23+$17,074.8=$21,092.03
Total $21,092.03 or $21,092
2.Colin is 35 years old and inherits an IRA from his mother, who dies prematurely at age 60. Which of the
following statements is correct regarding his options for the inherited IRA?
Colin does not have to take distributions until his mother would have been 70 years old.
Colin can rollover the IRA into his own IRA.
Colin can take out the entire distribution within ten years and avoid all penalties.
Colin must take distributions over his single life expectancy.
Answer: Colin can take out the entire distribution within ten years and avoid all penalties.
Explanation:
As a non-spouse beneficiary, you must directly roll over the inherited assets to the “inherited IRA” in your
own name and use your own age.
3. Which of the following statements is correct regarding self-employment tax?
1. W-2 income earned during a year will always reduce the amount of self-employment tax due on
self-employment income.
2. Two separate sources of self-employment income are combined to determine the total selfemployment tax owed by the taxpayer.
1 only.
2 only.
Both 1 and 2.
Neither 1 nor 2.
Answer: 2 only.
Explanation:
W-2 does not have any relation if there are two employment income as the employment will be taxed.
If there for a taxpayer are two separate different sources and deciding to fill the separate sources forms, the total
self-employment income will be determined in both combined income of the sources.
4. Kathy has an account balance in her employer’s money purchase pension plan of $100,000. The plan has a
2-6 graded vesting policy. She has been a participant for three and a half years and has worked for the
company for five years. Assuming the plan permits loans, what is the maximum loan that Kathy could take
from the plan?
$20,000.
$30,000.
$40,000.
$50,000.
Answer: $40,000.
Explanation:
Kathy’s account balance is 100,000, 3years of classified vesting is 40%
Therefore, 100,000*40=$40,000
Account balance: $40,000
5.Donna turned 72 on January 7th of Year 2., which is before the year 2020. Her profit-sharing account
balance was $100,000 at the end of Year 1 and $150,000 at the end of Year 2. Her beneficiary is her older
sister, Robin, who turned 82 years old on July 2nd of Year 2. Assume that the life expectancy factor based
on the uniform lifetime table for someone who is 70, 71, 72, and 73 is 27.4, 26.5, 25.6 and 24.7,
respectively. If Donna only takes a distribution of $2,000 for Year 2, then how much is her minimum
distribution penalty?
$953.
$1,024.
$1,930.
$2,036
Answer: $1,930
Explanation
Donna’s Account balance is 150,000
The Life expectancy factor is 25.6
The Profit-sharing is 150000/25.6
= 5,859.375
The Unpaid amount is 5,859.375-2000
= 3,859.375
Therefore, the distribution penalty is 3,859.375*50% or 0.5
= 1,929.6875 round off 1930
6.Which of the following statements regarding determination letters for qualified plans is true?
Employers must request a determination letter from the IRS for all qualified plans.
Employers must request a determination letter from the DOL for all qualified plans that are materially
modified or materially amended.
Employers who receive a favorable determination letter are protected from the IRS disqualifying their
qualified plan.
Employers must follow each and every aspect of their qualified plan document.
Answer: Employers must follow each and every aspect of their qualified plan document.
Explanation:
The determination letters are issued by the IRS at the request of the plan sponsor. The plan sponsor does not
need to request a confirmation letter. Even if the ruling is requested and approved, the IRS may still disqualify
the plan. Employers must comply with their plan.
7.Which of the following statements about required notifications is correct?
1. Employers are required to provide, free of charge, a summary of the details of the qualified
retirement plan, called a summary plan description, to employees, participants, and beneficiaries
under pay status (receiving benefits). The summary must be furnished within 90 days after the
person becomes a participant.
2. Employers are required to provide the plan participants notices of any plan amendments or
changes. This notice can be provided either through a revised Summary Plan Description or in a
separate document, called a summary of material modifications. This document must be given to
participants free of charge within 210 days after the end of the plan year in which a change is
adopted and applies when there are substantive changes in the plan.
1 only.
2 only.
Both 1 and 2.
Neither 1 nor 2.
Answer: Both 1 and 2
Explanation:
Both statements are correct straight out based on the record.
8.BJ has a vested account balance in his employer-sponsored qualified money purchase pension plan of
$60,000. He has two years of service with his employer and the plan follows the least generous graduated
vesting schedule permitted under PPA 2006. If BJ has an outstanding loan balance within the prior 12 months
of $15,000, what is the maximum loan BJ could take from this qualified plan, assuming the plan permitted
loans?
$15,000.
$30,000.
$35,000.
$50,000.
Answer: $15,000.
Explanation:
The maximum allowed loan should be 50% of the balance.
The maximum loan is $60000*50%=30000
maximum loan – outstanding loan
= 30000-15000 = 15000
Therefore, the new loan $15,000
9.Thomas, who is 49 years old, received a distribution from his Roth account of his employer’s 401(k) plan in
the amount of $100,000 on August 11th. He has been a participant in the plan for ten years. His adjusted basis
in the plan was $600,000 and the fair market value of the account as of August 11 was $1 million. The
distribution was for the purpose of buying a Porsche for himself for his birthday. What is the taxable amount
of the distribution and any applicable penalty?
$0 taxable, $0 penalty because it is a qualified distribution.
$40,000 taxable, $4,000 tax penalty.
$40,000 taxable, $0 tax penalty.
$100,000 taxable, $10,000 tax penalty.
Answer: $40,000 taxable, $4,000 tax penalty
Explanation:
The Fair market value is $1,000,000
The Adjusted basis in the plan $600,000
1,000,000-$600,000= $400,000
The total income earned is $400,000
taxable earnings= Distribution from his plan*total earned/Fair market value
=100,000 x (400,000/1,000,000)
= $40,000
Therefore, the $40,000 is taxable earning.
The early withdrawal penalty is 10%
=40,000*.10
=$4000
Therefore, the tax penalty is $4,000
=taxable $40,000 and the tax penalty is $4,000
10.Which of the following are acceptable reasons for an employer to terminate a qualified retirement plan?
1. The employer is not profitable and cannot afford to make plan contributions.
2. The employer wants to reduce the cost of retirement benefits. As a result, the employer terminates a
defined benefit plan and replaces it with a 401(k) plan.
1only.
2 only.
Both 1 and 2.
Neither 1 nor 2.
Answer: Both 1 and 2.
Explanation:
The most common reason for terminating a retirement plan is that the employer cannot afford the pension, or
if the employer wants to make other plans.