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Exam 12: Compensation

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Question 41

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Which of the following statements concerning cafeteria plans is true?

A) Allows employees to choose from a menu of fringe benefits or to choose cash.
B) Most of the menu choices are nontaxable fringe benefits.
C) Any cash elected is treated at taxable compensation.
D) All of these are true statements.

E) A) and D)
F) A) and B)

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Question 42

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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 sale of the stock? Assuming a marginal tax rate of 30 percent, what is Rick's tax on the sale of the stock?

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Question 43

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Kimberly's employer provides her with a personal travel allowance of $10,000 annually. Her marginal tax rate is 30 percent. Her employer has a marginal tax rate of 35 percent. What is Kimberly's after-tax benefit, ignoring payroll taxes?

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. $\begin{array} { | l | l | l | l | } \hline \text { Model } & \text { FMV } & \text { Dealer cost } & \text { Employee Price } \\\hline \text { Driver } & \$ 600 & \$ 400 & \$ 450 \\\hline \text { Irons } & \$ 1,200 & \$ 700 & \$ 800 \\\hline \text { Balls } & \$ 80 & \$ 75 & \$ 70 \\\hline \text { Bag } & \$ 250 & \$ 175 & \mathbf { \$ 2 0 0 } \\\hline\end{array}$ If the employer's average gross profit percentage is 30 percent, what amount must Jane include in income?

One primary purpose of equity compensation is to motivate employees.

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?

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 after vesting and sold them when the market price was $15. What is the amount of Rick's compensation income if Rick made an election under section 83(b) when the stock was granted? Assuming a marginal tax rate of 30 percent, what is the amount of Rick's income inclusion and tax liability at the time of the income inclusion?

Employees complete a Form W-2 to specify their income tax withholding.

Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.

The date on which stock options are given to the employee is called the exercise date.

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

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?

Which of the following does not qualify as a "for the convenience of the employer" nontaxable fringe benefit?

One purpose of Form W-4 is to determine an employee's withholding.

Which of the following statements regarding restricted stock is false?

Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,000 to purchase if she pays for it herself (Lina's AGI is too high to receive any tax deduction for the insurance as a medical expense). Because of group discounts, her employer can purchase the insurance for $6,000. Lina's employer has a 30 percent marginal tax rate. What would be the after-tax cost to Lina's employer to provide her with health insurance?

Francis works for a local fly fishing shop. The shop allows employees to purchase two fly rods per year at a discount. This year, Francis purchased one rod. The rod normally retails for $300, was purchased for $225, was sold to Francis for $250, and the employer's average gross profit percentage is 30 percent. What amount of the discount must be included in Francis' income?

Employer's expense for stock options is typically recognized earlier for book than tax purposes.

Which of the following refers to the date stock options are awarded to an employee?

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