Question

Question 1 (1 point)

Participants of a stock bonus plan sponsored by a C corporation must be given pass-through voting rights for the employer stock held by the plan.

Question 1 options:

	a. True
	b. False

Question 2 (1 point)

Melissa is the sole shareholder of Cupcake Surprises, Inc. (CSI) and sells 25% of the company stock to an ESOP for $550,000. Melissa had an adjusted basis in the CSI stock of $100,000. Provided Melissa reinvests the $550,000 in qualified replacement securities, she will not be required to recognize any capital gain.

Question 2 options:

	a. True
	b. False

Question 3 (1 point)

Elizabeth, age 60, has been a participant in the ADM, Inc. ESOP for 22 years. The normal retirement age of the ESOP is 65 years old. If Elizabeth’s ESOP account balance is comprised of ADM stock valued at $4,000,000, and considering that Elizabeth has not elected to diversify any amount prior to the current year, ADM must allow Elizabeth to diversify at least $1,000,000 of her ESOP account balance.

Question 3 options:

	a. True
	b. False

Question 4 (1 point)

One of the disadvantages of an ESOP is that the stock is in an undiversified investment portfolio. Which of the following statements is correct about ESOPs?

1. An employee, age 55 or older, who has completed 10 years of participation in an ESOP may require that 25 percent of the account balance be diversified.

2. An employee who receives corporate stock as a distribution from an ESOP may enjoy net unrealized appreciation treatment at the time of distribution.

Question 4 options:

	a. 1 only
	b. 2 only
	c. 1 and 2
	d. Neither 1 nor 2

Question 5 (1 point)

Bobby owns Advertising Solutions, Inc. (ASI) and sells 100% of the company stock on July 1 of the current year to an ESOP for $3,000,000. Bobby had an adjusted basis in the ASI stock of $450,000. If Bobby reinvests in qualified replacement securities before the end of the current year, which of the following statements is true?

Question 5 options:

	a. Bobby will not recognize long-term capital gain or ordinary income in the current year.
	b. Bobby must recognize $2,550,000 of long-term capital gain in the current year.
	c. Bobby must recognize $450,000 of ordinary income in the current year.
	d. If Bobby dies before selling the qualified replacement securities, his heirs will have an adjusted taxable basis in the qualified replacement securities of $450,000, Bobby’s carryover adjusted basis.