Business Study Deck Flashcards
- Which of the following statements about general partnerships is correct?
Only managing partners have liability for the partnership debts.
All partners are accountable for the firm’s operation and management.
The partnership must have at least one limited partner.
They provide an investment opportunity for people who want to be actively involved in the operation of the business.
All partners are accountable for the firm’s operation and management.
- The person creating a trust is known as the
corpus
trustee
grantor
trust officer
grantor
03 Which of the following qualified retirement plans promises the employee a specified benefit at retirement based on a formula? defined contribution defined benefit SEP SIMPLE
defined benefit
- Under a cross-purchase buy-sell plan funded by life insurance
death proceeds are taxable to the corporation
the agreement is between an owner and the corporation
the surviving stockholders are not allowed to purchase the policies on their own lives
each stockholder is typically the owner and beneficiary of insurance on the life of each other stockholder
each stockholder is typically the owner and beneficiary of insurance on the life of each other stockholder
- Some portion of a life insurance death benefit may be subject to federal income tax if
the transfer-for-value rule applies
the insured’s estate is the beneficiary
the insured had any incidents of ownership
the death benefit exceeds the value of a business interest as established in the buy-sell agreement
the transfer-for-value rule applies
- An S Corporation is
a corporation which is taxed as an unincorporated business
any business which elects to have earnings taxed as a distribution of dividends
a subsidiary corporation with a nonprofit tax status
normally owned by 90 or more stockholders
a corporation which is taxed as an unincorporated business
- A trust that can be altered or canceled by the grantor is a
super trust
revocable trust
remainder trust
reversionary trust
revocable trust
- Pre-approach mail can be helpful to a business insurance practice because
it eliminates the need to call for a scheduled appointment
it preconditions the prospect to expect a request for an appointment and to be more receptive to that request
it can do an effective selling job by itself; prospects always will call you
it is a low-cost way to avoid using the telephone
it preconditions the prospect to expect a request for an appointment and to be more receptive to that request
- When a business has sufficient cash flow to meet all financial obligations as they become due, it is said to be
solvent
profitable
retaining its earnings
making a good return on its investment
solvent
- The sale of stock under a cross-purchase plan will generally be viewed by the IRS as
a sale of stock
a stock redemption
a partial redemption
a distribution of dividends
a sale of stock
- What right does the insured key person typically have in a key person policy?
the right to name a secondary beneficiary
no rights, because the owner is the business
the right to assume ownership of the policy at retirement
the right to any cash value in excess of what the corporation has contributed
no rights, because the owner is the business
- A disadvantage of a sole proprietorship is
the loss of income at the death of a sole proprietor
double taxation at both the individual and business levels
the autonomy because there is no boss to criticize the sole proprietor’s work
the detailed annual reporting to the Small Business Administration maintain sole proprietorship status
the loss of income at the death of a sole proprietor
- The maximum possible marital deduction for a $2,000,000 adjusted gross estate would be
$192,800
$625,000
$1,200,000
$2,000,000
$2,000,000
- An important advantage of a cross-purchase buy-sell agreement is that it
requires fewer policies to fund than a stock redemption agreement
increases the cost basis of the business for the surviving owners
permits 30 percent of the premium to be deducted for tax purposes in partnership situations
avoids premium differences, even when there is a wide spread in the ages of the owners
increases the cost basis of the business for the surviving owners
- Hernandez bought stock valued at $100,000. When Hernandez died, the stock was valued at $150,000 and was left outright to Hernandez’s spouse, Maria. Maria’s cost basis for a subsequent sale is
$50,000
$75,000
$100,000
$150,000
$150,000
- Which of the following statements regarding using tax-related ideas as approaches to business insurance prospects is correct?
Life insurance premiums are always deductible to a corporation.
Death proceeds from a key person policy are received by a partnership free of federal income tax.
Life insurance premiums are generally income-tax deductible when the business itself is the beneficiary.
The cash value of a permanent life insurance policy owned by a partnership is taxable as ordinary income for federal income tax purposes.
Death proceeds from a key person policy are received by a partnership free of federal income tax.
- What is the tax status of premiums paid by a corporation for key person insurance on an owner of a corporation?
The owner is allowed a deduction of 30 percent of the premium paid for key person life insurance.
The insured owner deducts the premium according to his or her share of ownership of the corporation.
The premiums paid by the corporation are not counted as taxable income to the insured key person.
The insured receives an economic benefit and therefore must report part of the premium as taxable income.
The premiums paid by the corporation are not counted as taxable income to the insured key person.
- A sole proprietor wants his son and daughter to own the business after his death. Which of the following may be a serious obstacle to achieving this objective?
Section 303 prohibits such intra-family transfers.
No legal provision for continuance can be made in the owner’s will.
In the absence of a will, the estate administrator must liquidate the business within 90 days.
A widow may have a legal right to receive a portion of her deceased husband’s estate, including the value of the business.
A widow may have a legal right to receive a portion of her deceased husband’s estate, including the value of the business.
- Where are key person life insurance cash values generally listed on the balance sheet?
cash
liability
other assets
owner’s equity
other assets
- A codicil is best described as
a form of joint ownership
an addendum or addition to a will
a distribution of property outside the will
an amendment to a trust giving sprinkle power
an addendum or addition to a will
- Which of the following is true regarding key person life insurance?
Cash values belong to the insured.
Premiums are generally tax deductible by the business.
The insured key employee reports only the PS 58 cost of insurance as income.
In situations involving large corporations, death proceeds may be subject to the alternative minimum tax.
In situations involving large corporations, death proceeds may be subject to the alternative minimum tax.
- Tenancy by the entirety may exist only:
with personal property
between a husband and wife
among no more than 4 persons
among 3 or more members of the same family
between a husband and wife
- Which of the following is true with regard to heirs becoming active in a business at the death of an owner?
In a partnership, retaining family ownership may require reorganization of the business when a partner dies and his heirs become active members.
In a partnership, the surviving partners are required by law to accept the heirs as co-owners.
In a corporation, the other stockholders must give written permission for the transfer of stock to heirs.
In a corporation, if the heirs remain inactive in the management of a company, they forfeit any right to dividend income.
In a partnership, retaining family ownership may require reorganization of the business when a partner dies and his heirs become active members.
- With regard to a business fact-finding interview, it is
appropriate to offer specific insurance solutions during this interview
inappropriate to use an extensive fact-finding form because most business owners don’t like detailed and structured fact-finding interviews
inappropriate to ask for the prospect’s financial statements until after he or she has agreed to a specific recommendation for life insurance
very useful to use a fact-finding form that has some open-ended questions that invite subjective responses about a prospect’s feelings
very useful to use a fact-finding form that has some open-ended questions that invite subjective responses about a prospect’s feelings
- Which of the following statements about prospecting is true?
Members of a tips club represent the same industry or profession.
Cold calls in the business market are a common practice among insurance agents.
Referrals are generally unimportant in the business insurance market.
Premiums are deductible by the business on its income tax return.
Cold calls in the business market are a common practice among insurance agents.
- Retained earnings, accumulated earnings, and retained income are terms variously used interchangeably with
current assets or fixed assets
surplus
intangible assets
unreasonable compensation
surplus
- Cash flow addresses
the status of the firm’s debts
the efficiency of a firm’s operations
the timing of actual receipts minus expenditures
ratio of profits divided by owner’s equity
unknown
- Which of the following is an advantage of cold-call prospecting with businesses?
It is a time-efficient way of developing professional relationships with business owners.
It is a way of contacting business prospects with whom you share no mutual acquaintances.
It is a way of guaranteeing appointments with every business owner in a neighborhood.
It is a way to develop an academic understanding of how businesses work and the needs of business owners.
It is a way of contacting business prospects with whom you share no mutual acquaintances.
- The business purpose of becoming involved in community activities is to
make sales in the business community as soon as possible
further your personal interests and motivate yourself
increase your visibility and become known
seek ways to gain additional business tax deductions
increase your visibility and become known
- Which of the following statements about the use of fact-finding forms is correct?
It is often better to just wing it rather than to use a fact-finding form.
Once you have chosen a fact-finding form, use it the same way in all situations regardless of the prospect’s personal needs.
Fact-finding forms help you cover all points and leave nothing to chance and memory.
An in-depth conversation without using a fact-finding form is the most effective way to uncover a business owner’s needs.
Fact-finding forms help you cover all points and leave nothing to chance and memory.
- A major purpose of the approach in business insurance is to
prepare for an appointment
begin a fact-finding interview
recommend types of policies the prospect could purchase
establish rapport and start a business relationship
establish rapport and start a business relationship
- The most logical candidate to typically enter into a buy-sell agreement with a sole proprietor is
a key employee
a retired co-owner
a state work creation program
a newly incorporated competing business
a key employee
- If a partnership purchases a disability insurance policy to fund the buyout of a disabled owner, which of the following statements is correct?
The sale of disability income policies to individual partners is an unethical and illegal duplication of coverage.
The sale of disability income policies to individual partners will provide a way to replace lost salary in the event of disability.
There is no need for life insurance coverage to provide funds in the event of a partner’s death.
The policy should be replaced within the free look period with a life insurance policy offering a disability waiver of premium.
The sale of disability income policies to individual partners will provide a way to replace lost salary in the event of disability.
- Selling a business interest under a disability buyout agreement
avoids capital gains taxation for the disabled seller
can generate significant tax obligations for the disabled seller
must be funded to avoid imposition of the alternative minimum tax
must be unfunded to avoid imposition of the accumulated earnings tax
can generate significant tax obligations for the disabled seller
- In planning a Section 303 stock redemption, a business owner should be aware that
corporate control may shift as a result of the redemption
stock ownership must equal no less than 10 percent of the estate
stock dividends must generate no less than 20 percent of annual income
corporate control must remain st
corporate control may shift as a result of the redemption
- Mr. Smith owns a successful business. His two children participate in the business. His wife does not have an active role in the business. What is the most appropriate way to balance the needs of the spouse and children at Mr. Smith’s death?
Leave the entire business interest to the spouse.
Leave an undervalued business interest to the children.
Leave an overvalued business interest to the children.
Leave a fairly valued business to the children and insurance to the spouse.
Leave a fairly valued business to the children and insurance to the spouse.
- A Section 303 stock redemption is
a method of withdrawing estate settlement funds from a corporation
a method of withdrawing income tax funds from a partnership
a way to convert capital gain into ordinary income
a way to convert capital gain into capital loss
a method of withdrawing estate settlement funds from a corporation
- In a double-duty Section 303 stock redemption
disability insurance takes the place of life insurance
life insurance takes the place of disability insurance
life insurance proceeds are paid to the corporation and it loans the proceeds to the spouse
life insurance proceeds are paid to the spouse, who then loans the proceeds to the corporation
life insurance proceeds are paid to the spouse, who then loans the proceeds to the corporation
- In order to underwrite a key person life insurance policy an insurer generally requires that the business
have an insurable interest in the key person when the policy is issued
have an insurable interest in the key person for the contract duration
be organized as a corporation
be organized as a partnership
have an insurable interest in the key person when the policy is issued
- Which of the following types of business entities is (are) considered a pass-through entity under the federal income tax law?I. a partnershipII. an S corporation
I only
II only
Both I and II
Neither I nor II
Both I and II
- Which of the following statements concerning partnerships is (are) correct?I. A general partnership is essentially two or more individuals operating a business for profit.II. In a general partnership, the partners bear no personal liability for the firm’s obligations.
I only
II only
Both I and II
Neither I nor II
I only
- Which of the following statements about the executive bonus (Sec 162) plan is (are) correct?I. The executive owns and names a beneficiary on life insurance on his/her life.II. The life insurance premium is treated as income and treated as taxable to the executive.
I only
II only
Both I and II
Neither I nor II
Neither I nor II
- Which of the following statements concerning prospecting and the pre-approach is (are) correct?I. Most agents agree that direct mail is the most effective follow-up to pre-approach letters.II. Having prospects and clients come to your office conveys an attitude of professionalism and establishes the premise that they are coming to you for advice.
I only
II only
Both I and II
Neither I nor II
II only
- Which of the following is (are) correct about joint ownership?I. Tenancy in common can only be established at the time of property purchase.II. Tenancy in common passes automatically at death to the joint tenant(s).
I only
II only
Both I and II
Neither 1 nor II
Neither 1 nor II
- Which of the following statements concerning the accumulated earnings tax is (are) correct?I. The accumulated earnings tax applies to closely held corporations and partnerships.II. The accumulated earnings tax is a tax on excessive compensation.
I only
II only
Both I and II
Neither I nor II
Neither I nor II
- Which of the following statements regarding the income taxation of key person life insurance is (are) correct?I. Premiums are deductible by partnerships but not corporations.II. Premiums are generally not reportable by the key person.
I only
II only
Both I and II
Neither I nor II
II only
- All of the following statements regarding key person insurance are correct EXCEPT
Key person insurance is bought, paid for, and owned by the business on a key employee.
Premiums for key person insurance are not deductible to the business.
Unlike key person life insurance, key person disability insurance is deductible to the business.
If a transfer-for-value takes place, part of the death proceeds may be subject to federal income taxation.
Unlike key person life insurance, key person disability insurance is deductible to the business.
- All of the following statements represent the rights of a stockholder EXCEPT
the right to sell or transfer shares of stock
the right to automatically participate in the management decisions
the right to receive dividends, if declared, in proportion to the number of shares owned
the right to share assets in proportion to the number of shares owned in the event of liquidation
the right to automatically participate in the management decisions
- All of the following are prospecting sources to use in the business markets EXCEPT
tip clubs representing diverse industries
current clients who are business owners or key employees
members of community organizations you use solely for prospecting
businesses that you and/or your family patronize
members of community organizations you use solely for prospecting
- All of the following are characteristics of the corporate form of business EXCEPT
continuity of existence
ease of transferability of interests
limited liability of stockholders
decentralized management
decentralized management…
- Which of the following statements about sole proprietorships is true?
(A) The sole proprietorship form is advantageous for small firms; incorporation is advisable in any case where the business is large enough to qualify for a charter.
(B) Operations are more restricted than in the case of a limited partnership.
(C) Sole proprietors are not eligible for qualified retirement plans.
(D) The sole proprietor’s financial liability is unlimited and unshared.
(D) The sole proprietor’s financial liability is unlimited and unshared.
- An S Corporation is
(A) a corporation which is taxed like an unincorporated business
(B) any business which elects to have earnings taxed as a distribution of
dividends
(C) a subsidiary corporation with a nonprofit tax status
(D) normally owned by 90 or more stockholders
(A) a corporation which is taxed like an unincorporated business
- Which of the following is characteristic of limited liability companies?
(A) They are taxed as corporations.
(B) They allow only one class of ownership.
(C) Members cannot be active in the management of the business.
(D) They have no restrictions on foreign ownership.
(D) They have no restrictions on foreign ownership.
14. A joint venture most closely resembles (A) a partnership (B) an S corporation (C) a sole proprietorship (D) a professional corporation
(A) a partnership
- Which of the following is true with regard to a limited partnership?
(A) The income is taxed at corporate levels.
(B) Both limited and general partners enjoy limited liability equal to their capital contributions.
(C) The partnership interest of the limited partner can be reached by any of his or her creditors.
(D) Upon dissolution of the partnership, the general partner has priority in obtaining any assets before the limited partners are paid.
(C) The partnership interest of the limited partner can be reached by any of his or her creditors.
- A professional corporation differs from other closely held corporations in
which of the following ways?
(A) There may be only 35 stockholders in a professional corporation.
(B) A professional corporation is taxed at special lower income tax rates.
(C) Ownership is limited to licensed practitioners in a given profession.
(D) A buy-sell agreement is not needed with professional corporations.
(D) A buy-sell agreement is not needed with professional corporations.
- Which of the following is (are) a true statement regarding federal taxation
as it applies to corporations?
I. Dividends are paid out of profits that have already been taxed as
II. All undistributed earnings are taxed at capital gains rates. corporate income.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
- Which of the following statement about partnerships is correct?
- Each partner must obtain the consent of all other partners for each business transaction.
II. Each partner can sell his or her interest to a third party without the consent of the other partners.
(A) I only
(B) II only
(C) Both I and 11
(D) Neither I nor II
(D) Neither I nor II
19. All of the following are characteristics of the corporate form of business EXCEPT (A) unlimited life (B) lack of transferability (C) limited liability (D) centralized management
(B) lack of transferability
- All of the following statements about partnerships are correct EXCEPT
(A) In a general partnership, the partners bear personal liability for the firm’s obligations.
(B) A general partnership is essentially two or more individuals operating a business for profit.
(C) A partnership can be incorporated or unincorporated depending on the number of partners.
(D) A limited partnership is simply an unincorporated organization with at least one general and one limited partner.
(C) A partnership can be incorporated or unincorporated depending on the number of partners.
19. Retained earnings, accumulated earnings, and retained income are terms variously used interchangeably with (A) current assets or fixed assets (B) surplus (C) intangible assets (D) unreasonable compensation
(B) surplus
20. Where are key person life insurance cash values generally listed on the balance sheet? (A) other assets (B) liability (C) net worth (D) cash
(A) other assets
21. Working capital is (A) net sales (B) gross sales (C) profits before taxes (D) excess of current assets over current liabilities
(D) excess of current assets over current liabilities
- Cash flow addresses:
(A) the status of the firm’s debts
(B) the efficiency of a firm’s operations
(C) the timing of actual cash transactions
(D) the rate at which inventory can be converted to cash
(C) the timing of actual cash transactions
- The primary purpose of estate planning is the help the estate owner:
(A) achieve his or her goals for the distribution of assets following death
(B) minimize the costs of transferring the estate under all circumstances
(C) arrange for the purchase of a decedent’s business interest at a predetermined price
(D) guarantee that the sole proprietorship can continue after the owner’s death
(A) achieve his or her goals for the distribution of assets following death
- What is the formula for determining owner’s equity on a balance sheet?
(A) earnings plus assets equals owner’s equity
(B) assets minus liabilities equals owner’s equity
(C) assets divided by liabilities equals owner’s equity
(D) liabilities multiplied by assets equals owner’s equity
(B) assets minus liabilities equals owner’s equity
25. Goods most recently bought or produced are treated as those first sold is an example of: (A) FIFO (first in, first out) (B) LIFO (last in, first out) (C) FOFI (first out, first in) (D) LOLI (last out, last in)
(B) LIFO (last in, first out)
- Which of the following is (are) correct about the balance sheet:
I. It summarizes the income and expenses of a business over a period of time.
II. It represents a snapshot of the financial status of a business at a Point in time.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor Ii
(B) II only
- Which of the following statements concerning the income statement is (are)
correct?
I. It summarizes the income and expenses of a business over a period of time.
II. It represents a snapshot of the financial status of a business at a point in time.
(A) I only
(B) II only
(C) Both I and ll
(D) Neither I nor II
(A) I only
28. On a balance sheet all of the following are considered current assets EXCEPT (A) cash (B) inventory (C) equipment (D) accounts receivable
(C) equipment
- Which of the following does the text suggest as the best source to start
prospecting in the business markets?
(A) tip clubs
(B) current clients
(C) centers of influence
(D) businesses that you and/or your family patronize
(B) current clients
- Which of the following statements about prospecting and the preapproach
is true?
(A) Third-party influence refers to your social status.
(B) The advantages of conducting the initial interview in the prospect’s office far outweigh the disadvantages.
(C) Most agents agree that direct mail is the most effective follow-up to preapproach letters.
(D) Having prospects and clients come to your office conveys an attitude of professionalism and establishes the premise that they are coming to
you for advice.
(D) Having prospects and clients come to your office conveys an attitude of professionalism and establishes the premise that they are coming to
you for advice.
- preapproach mail can be helpful to a business insurance practice because it
(A) eliminates the need for a scheduled appointment
(B) preconditions the prospect to expect a request for an appointment and to be more receptive to that request
(c) does an effective job of selling by itself and prospects will call you (D) makes your work easier because you do not have to follow up on the mailing
(B) preconditions the prospect to expect a request for an appointment and to be more receptive to that request
The “rule of eight” states that
(A) The first eight seconds of the approach or eight words of the agent may win or lose the sale.
(B) Prospecting results improve if you have just eaten before making calls.
(C) It is best to stand at least eight feet from the prospect in the approach.
(D) Your phone approach creates a first impression and your first meeting a second.
(A) The first eight seconds of the approach or eight words of the agent may win or lose the sale.
A major purpose of the approach in business insurance is to
(A) prepare for an appointment
(B) establish rapport and start a business relationship
(C) begin a fact-finding interview
(D) recommend types of policies the prospect could purchase
(B) establish rapport and start a business relationship
Third-party influence refers to
(A) your social connections
(B) those centers of influence who refer you to others
(C) reference material that establishes prestige and credibility
(D) endless chain prospecting
(C) reference material that establishes prestige and credibility
The business purpose of becoming involved in community activities is to
(A) make sales in the business community as soon as possible
(B) increase your visibility and become known
(C) further your personal interests and motivate yourself
(D) seek ways to gain additional business tax deductions
(A) make sales in the business community as soon as possible
- AP of the following are criteria for a person to be a center of influence for
business insurance sales EXCEPT
(A) a person who is a former policyowner
(B) a person who has high prestige in the community
(C) a person who has more than a passing interest in your business success
(D) a person who has access to or knowledge of a wide circle of successful people on a regular basis
(A) a person who is a former policyowner
- All of the following statements about prospecting are true EXCEPT
(A) Cold calls are seldom successful in the business insurance markets and should not be used for prospecting in this field.
(B) The local library often contains reference books and directories that can be effective tools for identifying prospects.
(C) Tips clubs are composed of local salespersons from a diverse group of industries and are formed for the exchange of information on business
prospects.
(D) Active participation in community organizations is a way to gain valuable contacts because the more successful business owners are often among the leaders of these organizations.
(A) Cold calls are seldom successful in the business insurance markets and should not be used for prospecting in this field.
- All of the following are keys to an effective preapproach EXCEPT
(A) your attitude
(B) your prospecting ability
(C) your knowledge of taxes
(D) your ability to build trust and prestige
(C) your knowledge of taxes
- Which of the following characteristics of a sole proprietorship does not point
directly to a need for life insurance?
(A) The sole owner is usually the manager of the business and the only person completely familitir with its operation.
(B) A sole proprietorship expires with the death of the owner.
(C) There are no associates who must be consulted on major decisions.
(D) The owner does not usually have the full range of fringe benefits available to an owner of a corporation who serves as an employee
(C) There are no associates who must be consulted on major decisions.
Select the life situation below which must urgently calls for life insurance
coverage.
A) Mr. Braunschweiger becomes a stockholder of General Motors.
B) A stockholder personally guarantees his corporation’s note for a $100.000 loan.
c) A business executive signs a will leaving his Kodak stock to his son and
government bonds of equal market value to his daughter.
D) Smith purchases 5 percent of the stock in a small corporation but continues to work for General Motors as a line foreman.
B) A stockholder personally guarantees his corporation’s note for a $100.000 loan.
- On the death of a partner, the surviving partner is charged with the specific
duty of
(A) continuing the business to help support the widow
(B) buying out the heirs within 6 months
(C) notifying the newspapers of the firm’s new status
(D) winding up the firm’s business and accounting for the remaining assets
(D) winding up the firm’s business and accounting for the remaining assets
18 Select the most important reason why close-corporation stock is usually an unsuitable investment for a deceased stockholder’s family.
(A) It is usually too expensive for the average investor.
(B) Ordinarily the other stockholders comprise the only market for the stock, and there isn’t likely to be much return except through a sale.
(C) Stock ownership and management of a close corporation are separate.
(D) Dividends are subject to income tax at surcharge rates.
(B) Ordinarily the other stockholders comprise the only market for the stock, and there isn’t likely to be much return except through a sale.
- Which of the following is a goal of the fact-finding interview?
(A) obtain referrals
(B) build prestige and confidence
(C) make tentative recommendations
(D) get agreement on a solution to the need
(B) build prestige and confidence
- The immediate and most urgent problem of heirs to a closely held business is typically
(A) to liquidate the business interest without probate
(B) payment of federal estate taxes within 3 months of death
(C) a need for current income to replace the salary of the deceased
(D) a need for current income to replace the dividends paid on the deceased’s stock
(C) a need for current income to replace the salary of the deceased
- In the transition to fact-finding, the advisor should
A) Move ahead without any explanation
B) explain the next step and tell the prospect why it is important
C) explain the importance of the fact-finding and then immediately leave
D) insist that the fact-finding interview be a continuing part of the initial meeting
B) explain the next step and tell the prospect why it is important
- Which of the following statements concerning liquidation of a business n the
event of the owner’s death is (are) correct?
I. Even in a forced liqoodwill is retained and uidation. any value in g
II. With a planned liquidation, the estate executor generally has no time to passed on to the heirs.
wait for an orderly collection of accounts receivable.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
- Which of the following statements concerning the use of fact-finding forms
is (are) correct?
I. Fact-finding forms help you cover all points and leave nothing to chance and memory.
II. After you have chosen a fact-finding form, use it the same way in all situations regardless of the prospect’s personal needs.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
- All of the following are goals of the fact-finding interview EXCEPT
(A) Build trust and credibility with the prospect.
(B) Obtain at least three referrals.
C) Gather information that will be needed for a proposal.
(D) Obtain agreement to proceed to the next step in the sales process.
(B) Obtain at least three referrals.
- Some portion of a life insurance death benefit may be subject to federal
income tax if
(A) the insured had any incidents of ownership
(B) the death benefit exceeds the value of a business interest as established in the buy-sell agreement
(C) the transfer-for-value rule is applicable
(D) all of the above
(C) the transfer-for-value rule is applicable
- Which of the following is a characteristic of a wait-and-see buy-sell
agreement?
(A) It is the same as a cross-purchase plan.
(B) All surviving stockholders are required to buy the stock of the deceased stockholder.
(C) Purchase options must be exercised at least 30 days before the death of a stockholder or the agreement is void.
(D) If options to purchase are not exercised, the corporation is required to purchase the interest of the deceased owner.
(D) If options to purchase are not exercised, the corporation is required to purchase the interest of the deceased owner.
- Under an insurance-funded cross-purchase buy-sell plan:
(A) Death proceeds are taxable to the corporation.
(B) The agreement is between an owner and the corporation.
(C) The surviving stockholders are not allowed to purchase policies on their own lives.
(D) Each stockholder is typically the owner and beneficiary of insurance on the life of each other stockholder.
(D) Each stockholder is typically the owner and beneficiary of insurance on the life of each other stockholder.
- When life insurance is used to fund a partnership buy-sell agreement, what is
the federal income tax result?
(A) Premiums are not deductible and proceeds are received income tax free.
(B) The life insurance proceeds may be subject to the corporate alternative minimum tax.
(C) Premiums are tax deductible to each partner, but proceeds are taxable when received.
(0) Any annual increase in policy cash value must be reported by each partner as taxable income.
(A) Premiums are not deductible and proceeds are received income tax free.
- Smith, Jones and Carey enter into a cross-purchase buy-sell agreement
funded by life insurance. How many policies must be purchased?
(A) 3
(B) 6
(C) 9
(D) 12
(B) 6
16. The price at which property would exchange hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell describes: (A) net worth (B) goodwill value (C) fair market value (D) fair return on investment
(C) fair market value
- In a two-owner corporation, who normally owns the life insurance policies that fund a cross-purchase buy-sell agreement?
(A) Each policy is jointly owned.
(B) Each owns a policy on him or herself.
(C) Each owns a policy on the other.
(D) The corporation owns a policy on both owners.
(C) Each owns a policy on the other.
- Which of the following statements is (are) correct regarding the federal income tax treatment when life insurance is used to fund a buy-sell agreement under an entity plan?
I. Premiums are tax deductible by the firm and the proceeds are received tax free.
II. Premiums are deductible and the proceeds are fully reportable as taxable income.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
- Which of the following statements regarding a funded buy-sell agreement
is (are) correct?
I. It can provide assurance that heirs will not be forced to sell to outsiders
II. It provides assurance that a bank will lend the funds needed to buy
the heirs’ interest in the company.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
20. A buy-sell agreement is appropriate in all of the following business forms EXCEPT (A) S corporation (B) Sole proprietor (C) Limited liability company (D) Large publicly held corporation
(D) Large publicly held corporation
24. Using the straight capitalization method to determine the value of a business, how much capital is required to produce $10,000 a year at a capitalization rate cf 15 percent? (A) $150.000 (B) $ 66.667 (C) $ 15.000 (D) $ 1.500
(B) $ 66.667
- Premiums paid for a disability buy-out policy are
(A) fully deductible as a business expense
(B) partially deductible as business expense
(C) not tax deductible, but the benefits are received tax free
(D) not tax deductible, and the benefits are taxable when they are received
(C) not tax deductible, but the benefits are received tax free
- A business overhead expense policy
(A) covers operating expenses when an owner is unable to work due to a disability
(B) pays the owner a specified monthly benefit if disability occurs
(C) includes coverage for the cost of inventory, capital expenses, and lost profits
(D) covers the owners’ salary during a period of disability
(A) covers operating expenses when an owner is unable to work due to a disability
- The benefit that can be received from a business overhead policy is:
(A) the actual amount of expenses incurred with a maximum monthly benefit specified in the policy
(B) unlimited amount based on actual expenses incurred during a period of disability
(C) the fixed monthly amount stated in the policy
(D) subject to a monthly deductible as stated in the policy
(A) the actual amount of expenses incurred with a maximum monthly benefit specified in the policy
- The straight capitalization method of valuing a closely held business
(A) averages a company’s balance sheet value over 5 years
(B) divides a company’s historical assets by current liabilities
(C) divides a company’s earnings by a reasonable rate of return
(D) averages a company’s publicly listed stock value over 2 years
(C) divides a company’s earnings by a reasonable rate of return
