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Exam 12: Compensation

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Question 21

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Raja received 20 NQOs (each option gives him the right to purchase 15 shares of stock for $14 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 $23 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 32 percent?

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Question 22

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

A) Grant date
B) Exercise date
C) Lapse date
D) Vesting date

E) A) and B)
F) A) and C)

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Question 23

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Which of the following is false regarding a section 83(i) election?

Hazel received 20 NQOs (each option gives her the right to purchase 10 shares of stock for $7 per share)at the time she started working, when the stock price was $14 per share. Now that the share price is $20 per share, she intends to exercise all of her options. If Hazel holds the shares for two years after exercise and sells them when the market price is $25, how much gain will Hazel recognize on the sale and how much tax will she pay, assuming her marginal tax rate is 37 percent?

The date on which stock options are no longer subject to forfeiture is called the vesting date.

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

Hazel received 20 NQOs (each option gives her the right to purchase 10 shares of stock for $7 per share)at the time she started working, when the stock price was $14 per share. Now that the share price is $20 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?

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

Which of the following statements regarding restricted stock is false?

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?

Which of the following isn't reported on the Form W-2?

Grace'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 Grace's employer $700 to provide this amount of insurance to Grace each year. Assuming that Grace is 43 years old, use the table to determine the monthly premium that Grace must include in income as a result of receiving the group-term life benefit. Uniform Premiums for $1,000 of Group-Term Life Insurance Protection:

Which of the following is false regarding a section 83(b) election?

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

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.

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

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

Hazel received 34 NQOs (each option gives her the right to purchase 10 shares of stock for $9 per share)at the time she started working, when the stock price was $16 per share. Now that the share price is $22 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?

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 of 32 percent, what is Rick's tax on the restricted stock?