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Exam 12: Compensation

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Question 1

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Stevie recently received 1,000 shares of restricted stock from her employer,Nicks Corporation,when the share price was $8 per share.Stevie's restricted shares vested three 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.What is the amount of Stevie's ordinary income with respect to the restricted stock?

A) $0.
B) $5,000.
C) $8,000.
D) $11,000.

E) None of the above
F) A) and C)

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Question 2

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 3

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Big Bucks,a publicly traded corporation,paid its CEO $1,500,000 of base compensation for the year.What is the after-tax cost of paying the salary assuming a 21 percent marginal tax rate?

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.Assuming that Rick made an election under section 83(b)when the stock was granted and that his marginal tax rate is 24 percent,what is the amount of Rick's income inclusion and tax liability upon the sale of the stock?

Which of the following is not an example of a taxable fringe benefit?

Taxable fringe benefits include automobile allowances,gym memberships,and personal-use tickets to the theater or sporting events.

Up to $10,000 of dependent care expenses can be excluded from an employee's compensation.

For compensation plans adopted by a company in 2019,when a publicly traded CEO's salary exceeds $1,000,000,the employee ________ taxed on the entire amount,and the employer ________ allowed a deduction on the entire amount.

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

Which of the following statements concerning cafeteria plans is true?

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

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).Lina's employer has a 21 percent marginal tax rate.What is the maximum amount of before-tax salary Lina would give up to receive health insurance? (Round your answer to the nearest whole number.)

Cornhusker Bank reimburses employees for dues to the local banker's association.The reimbursement is includible in the employee's income.

On Form W-4,an employee can only claim one allowance for each personal or dependency exemption that will be claimed on the employee's income tax return.

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 35 percent,what is the amount of Rick's ordinary income amount and tax liability at the time of the income inclusion?

Which of the following is true regarding stock options?

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?

Flexible spending accounts allow employees to set aside before-tax dollars for medical and dependent care expenses.

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?

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