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Exam 12: Compensation

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Question 61

Multiple Choice

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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. Assuming Stevie made a section 83(b) election, 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 D)

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Question 62

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Stock options will always provide employees with future compensation.

A) True
B) False

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Question 63

Multiple Choice

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

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. What is the amount of Maren's bargain element?

How is the bargain element for a stock option calculated?

An employee can indicate whether they want an additional amount withheld for payroll taxes on the Form W-4.

Maren received 12 NQOs (each option gives her the right to purchase 13 shares of stock for $10 per share) at the time she started working when the stock price was $8 per share. When the share price was $17 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $22 per share. How much gain will Maren recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 37 percent?

Which of the following pairs of items is not needed to calculate the after-tax proceeds for a same-day sale?

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

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

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?

Maren received 10 NQOs (each option gives her the right to purchase 15 shares of stock for $7 per share) at the time she started working when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. What is the amount of Maren's bargain element?

Kimberly's employer provides her with a personal travel allowance of $26,000 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?

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

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. How much gain will Maren recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 37 percent?

Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share)at the time she started working, when the stock price was $13 per share. Three years later, when the share price was $23 per share, she exercised all of her options. If Suzanne holds the shares for two additional years and sells them when the market price is $30, how much gain will Suzanne recognize on the sale and how much tax will she pay, assuming her marginal tax rate is 37 percent?

Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share)at the time she started working, when the stock price was $14 per share. Three years later, when the share price was $23 per share, she exercised all of her options. How much cash will Suzanne need on the exercise date of the stock options?

Which of the following statements regarding compensation is false?

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

Corinne's employer offers a cafeteria plan that allows employees to choose among a number of benefits. Each employee is allowed $12,280 in benefits. For the current year, Corinne selected $4,520 of health insurance, $5,520 of dependent care, $1,040 in 401(k)contributions, and $1,200 of cash. How much must Corinne include in taxable income?