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Exam 12: Compensation

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Question 31

True/False

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An employer always receives a deduction for total compensation paid to a CEO.

A) True
B) False

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Question 32

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Which of the following statements regarding employer-provided educational benefits is true?

A) All undergraduate tuition expenses can be excluded.
B) Only educational benefits from public universities can be excluded.
C) Up to $5,250 in tuition benefits can be excluded.
D) All graduate tuition expenses are included.

E) C) and D)
F) A) and D)

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Question 33

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Hazel received 22 NQOs (each option gives her the right to purchase 14 shares of stock for $7 per share)at the time she started working, when the stock price was $17 per share. Now that the share price is $22 per share, she intends to exercise all of her options. How much income will Hazel recognize on the exercise date and how much tax will she pay, assuming her marginal tax rate is 24 percent?

Annika's employer provides its employees with parking benefits. The fair market value of the annual parking benefit is $4,800 ($400 per month). What is the amount Annika must include into income with respect to her parking benefit in 2020?

Tom recently received 2,000 shares of restricted stock from his employer, Independence Corporation, when the share price was $10 per share. Tom's restricted shares vested three years later when the market price was $14. Tom held the shares for a little more than a year and sold them when the market price was $12. What is the amount of Tom's income or loss on the sale?

Tasha receives reimbursement from her employer for dependent-care expenses for up to $8,000. Tasha applies for and receives reimbursement of $6,000 for her 10-year-old son. How much, if any, is includible in her income?

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $12 per share) from his employer. At the time he started working, the stock price was $11 per share. Now that the share price is $25 per share, he exercises all of the options. Two years later Bad Brad sells the stock for $27 per share. What is Bad Brad's basis in his stock for purposes of calculating the gain or loss at the time of the sale?

Employers cannot discriminate between highly and non-highly compensated employees when providing taxable fringe benefits.

Hazel received 24 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share)at the time she started working, when the stock price was $15 per share. Now that the share price is $21 per share, she intends to exercise all of her options. How much cash will Hazel need on the exercise date to exercise the stock option?

Jane is an employee of Rohrs Golf Emporium. The shop allows employees to purchase equipment at significant discount. This year, Jane purchased several new items to improve her game. If the employer's average gross profit percentage is 30 percent, what amount must Jane include in income?

A cafeteria plan provides employees discounted meals at a company-sponsored dining room.

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehiclesper year at a discount. Levingston's average gross profit percentage is 15 percent. This year Kevin purchased a 530 model and a new M3. What amount must Kevin include in income?

Annika's employer provides each employee with up to $200 of monthly vouchers for public transportation. What is the amount that Annika must include into income with respect to her benefit in 2020?

An employee can indicate whether they want an additional amount withheld for payroll taxes on the Form W-4.

If certain conditions are met, an apartment manager can exclude the fair market value of free rent from his or her income.

Group-term life insurance is a fringe benefit that can be partially taxable and partially tax-free.

Rick recently received 500 shares of restricted stock from his employer, Crazy Corporation, when the share price was $5 per share. Rick's restricted shares vested three years later, when the market price was $12. Rick held the shares for a little more than a year and sold them when the market price was $15. What is the amount of Rick's gain on the sale of the stock? Assuming a marginal tax rate of 37 percent, what is Rick's tax on the sale of the stock?

Rachel receives employer-provided health insurance. The employer's cost of the health insurance is $6,000 annually. What is her employer's after-tax cost of providing the health insurance, assuming that the employer's marginal tax rate is 21 percent and the employer is profitable?

For compensation plans adopted by a publicly traded company in the current year, when a CEO's salary exceeds $1,000,000, the employee ______ taxed on the entire amount, and the employer ______ allowed a deduction on the entire amount.

An employee's income with respect to restricted stock is the fair market value on the vesting date.