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Exam 12: Compensation

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Question 1

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

A) True
B) False

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Question 2

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Raja received 20 NQOs (each option gives him the right to purchase 15 shares of stock for $10 per share) from his employer at the time he started working when the stock price was $11 per share. Now that the share price is $20 per share, he intends to exercise all of the options using a same-day sale. What are Raja's after-tax proceeds from the sale if his marginal tax rate is 30 percent?

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$2,100.
The after-tax proceeds is the sa...

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Question 3

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Current compensation is usually comprised of salary, wages, and bonuses.

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 35 percent and is profitable?

Stevie recently received 1,000 shares of restricted stock from her employer, NicksCorporation, when the share price was $8 per share. Stevie's restricted shares vestedthree years later when the market price was $11. Stevie held the shares for a little more than a year and sold them when the market price was $16. Assuming Stevie made asection 83(b) election, what is the amount of Stevie's ordinary income with respect to the restricted stock?

One primary purpose of equity compensation is to motivate employees.

Employers sometimes pay a "gross-up" to employees to cover taxes associated with taxable fringe benefits they provide.

How is the bargain element for a stock option calculated?

Employees will always prefer to receive incentive stock options over nonqualified stock options.

Fringe benefits are generally a form of non-cash compensation.

Corinne's employer offers a cafeteria plan that allows employees to choose among a number of benefits. Each employee is allowed $12,000 in benefits. For the current year, Corinne selected$4,500 of health insurance, $5,500 of dependent care, $1,000 in 401(k) contributions, and $1,000 of cash. How much must Corinne include in taxable income?

Brandy graduated from Vanderbilt with her bachelor's degree recently. She works for Walton & Company CPAs. The firm pays her tuition ($8,000 per year) for her so that she can receive her MBA. How much of the $8,000 tuition benefit does Brandy need to include in her income?

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 income on the vesting date? Assuming a marginal tax rate of30 percent, what is Rick's tax on the restricted stock?

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase72u) p to two vehicles at a discount. Levingston's average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3. What amount must Kevin include in income?

Which of the following benefits cannot be excluded as a no additional cost service fringe benefit?

Which of the following is a fringe benefit that employers can discriminate among employees?

Which of the following is not a requirement of a "qualified employee discount"?

Employers always prefer to award incentive stock options rather than nonqualified stock options.

Kaijsa received 20 NQOs (each option gives her the right to purchase 30 shares of stock for $8 per share) from her employer at the time she started working when the stock price was $9 per share. Now that the share price is $18 per share, she intends to exercise all of her options. If Kaijsa holds the shares for two years and sells them when the market price is $25, what is the amount of the deduction and tax savings her employer will receive (assume the employer's marginal tax rate is 30 percent)?