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Exam 12: Compensation

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Question 1

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Tanya's employer offers a cafeteria plan that allows employees to choose among a number of benefits. Each employee is allowed $6,000 in benefits. For 2014, Tanya selected $3,200 of parking, $2,200 in 401(k) contributions, and $800 of cash. How much must Tanya include in taxable income?

A) $0.
B) $1,000.
C) $1,120.
D) $4,000.

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

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Question 2

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Health insurance is an example of a nontaxable fringe benefit.

A) True
B) False

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Question 3

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Employers computing taxable income under the accrual method may deduct wages accrued as compensation expense in one year and paid in the subsequent year, as long as the company makes the payment within 2½ months after the employer's year-end.

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? (ADD TABLE)

The employee's income for restricted stock is typically measured on the grant date.

Which of the following statements regarding employer provided educational benefits is true?

Which of the following statements regarding income tax withholding is incorrect?

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 one additional year 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 35 percent?

Employees will always prefer to receive incentive stock options over nonqualified stock options.

Qualified employee discounts allow employees to purchase employer goods at a discount.

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.

Which of the following statements regarding compensation is false?

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 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 25 percent?

Which of the following forms is filled out by an employee, who is a citizen, at the beginning of an employment relationship?

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

How is the bargain element for a stock option calculated?

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

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 and how much tax will she pay assuming her marginal tax rate is 35 percent?

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

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