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Exam 12: Compensation

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Question 31

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Leesburg paid its employee $200,000 of compensation for the year.What is the after-tax cost of paying the salary assuming a 21 percent marginal tax rate (ignore payroll taxes)?

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$158,000.$...

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Question 32

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

A) Free tax return preparation from a client.
B) Complimentary dry cleaning for employees at a laundry company.
C) A car wash at an automobile dealership.
D) Free local phone service for phone company employees.

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

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Question 33

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

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 21 percent marginal tax rate.What would be the after-tax cost to Lina's employer to provide her with health insurance?

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?

Which of the following statements is true regarding the $1,000,000 limit on covered employees for publicly traded companies?

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?

Which of the following items is not included on an employee's Form W-2?

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

Kimberly's employer provides her with a personal travel allowance of $10,000 annually.Her marginal tax rate is 32 percent.Her employer has a marginal tax rate of 21 percent.What is Kimberly's after-tax benefit,ignoring payroll taxes?

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

How is the bargain element for a stock option calculated?

Which of the following is false regarding dependent-care expenses?

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

Hope's employer is now offering group-term life insurance.The company will provide each employee with $200,000 of group-term life insurance.It costs Hope's employer $700 to provide this amount of insurance to Hope each year.Assuming that Hope is 27 years old,use the table to determine the monthly premium that Hope must include in income as a result of receiving the group-term life benefit. EXHIBIT 12-10 Uniform Premiums for $1,000 of Group-Term Life Insurance Protection

The use of restricted stock is increasing relative to the use of stock options.

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

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?

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

Which of the following is not a purpose of equity-based compensation?