Question 1

Rachel receives employer provided health insurance.The employer's cost of the health insurance is $6,000 annually.What is her employer's after-tax cost of providing the health insurance,assuming that its marginal tax rate is 35 percent?

Accepted Answer

A)  $0
B)  $3,900
C)  $4,198
D)  $6,000E) C) and D)
F) B) and D)

Question 2

When a CEOs salary exceeds $1,000,000,the employee _____ taxed on the entire amount,and the employer ______ allowed a deduction on the entire amount.

Accepted Answer

A)  is,is
B)  is,is not
C)  is not,is
D)  is not,is notE) C) and D)
F) B) and C)

Question 3

Which of the following statements concerning cafeteria plans is true?

Accepted Answer

A)  Allows employees to choose from a menu of fringe benefits or to choose cash.
B)  Most of the menu choices are nontaxable fringe benefits.
C)  Any cash elected is treated at taxable compensation.
D)  All of these are true statements.See discussion in text.E) B) and D)
F) C) and D)

Question 4

Which of the following is false regarding dependent care expenses?

Accepted Answer

A)  Up to $5,000 of reimbursed expenses can qualify.
B)  Employers may discriminate among employees.
C)  Dependent children under 13 qualify.
D)  Spouses who are physically or mentally unable to care for themselves qualify.Employers may not discriminate with respect to dependent care expenses.E) A) and C)
F) B) and C) B

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 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 intends to exercise 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?

Accepted Answer

A)  $6,000.
B)  $9,000.
C)  $15,000.
D)  $16,200.The basis is the $6,000 (600 shares × $10 strike price)  cash paid and the $9,000 (600 shares × $15 bargain element)  income recognized on the exercise-which is equal to the market price on the exercise date less the strike price.E) B) and C)
F) A) and D)

Question 10

When stock options are exercised they are converted into actual employer stock.

Accepted Answer

A) True 
 B)False

Question 11

One primary purpose of equity compensation is to motivate employees.

Accepted Answer

A) True 
 B)False

Question 12

Francis works for a local fly fishing shop.The shop allows employees to purchase two fly rods per year at a discount.This year Francis purchased one rod.The rod normally retails for $300,was purchased by the shop for $225,and sold to Francis for $250.If the average gross profit percentage of the shop's goods is 20%,what amount of the discount must be included in Francis' income?

Accepted Answer

A)  $0
B)  $25
C)  $60
D)  Some other amount.Because the discount was less than the average gross profit percentage of the shop's goods,and above cost,there is no income inclusion.E) B) and D)
F) A) and B)

Question 13

Aharon exercises 10 stock options awarded several years ago.The following information pertains to the options: (1)  each option gives the employee the right to buy 10 shares, (2)  the market price on the grant date was $7, (3)  the strike price is $10,and (4)  the market price on the exercise date was $15.How much will it cost Aharon to purchase the options on the exercise date?

Accepted Answer

A)  $90.
B)  $500.
C)  $700.
D)  $1,000.$1,000 (10 options × 10 shares × $10 exercise price)  .E) A) and D)
F) All of the above

Question 14

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

Accepted Answer

A)  Provide risk and incentives to employees.
B)  Motivate employees by aligning employee and employer incentives.
C)  Avoid compensation limits for executives.
D)  Provides a low or no cost form of compensation.Employers have to repurchase shares or dilute ownership (incurring opportunity costs)  to provide equity-based compensation.E) A) and D)
F) A) and C)

Question 15

How is the bargain element for a stock option calculated?

Accepted Answer

A)  The difference between the strike price and the market price on the date of grant.
B)  The difference between the market price on the exercise date and the market price on the date of grant.
C)  The difference between the market price on the exercise date and the strike price.
D)  The difference between the market price on the sale date and the strike price.The bargain element is simply the difference between the market price on the exercise date and the strike price.E) B) and C)
F) C) and D)

Question 16

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

Accepted Answer

A)  Free tax return preparation from a client.
B)  Complementary 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.The service must be provided at no additional cost by the employer.E) A) and D)
F) A) and C)

Question 17

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?

Accepted Answer

A)  $0.
B)  $1,000.
C)  $3,000.
D)  $6,000.Employees may exclude up to $5,000 of dependent care expenses.E) B) and C)
F) All of the above B

Question 18

Stock options will always provide employees with future compensation.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False  True

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 12: Compensation

Rachel receives employer provided health insurance.The employer's cost of the health insurance is $6,000 annually.What is her employer's after-tax cost of providing the health insurance,assuming that its marginal tax rate is 35 percent?

Correct Answer
verified

When a CEOs salary exceeds $1,000,000,the employee _ taxed on the entire amount,and the employer __ allowed a deduction on the entire amount.

Correct Answer
verified

Which of the following statements concerning cafeteria plans is true?

Correct Answer
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Which of the following is false regarding dependent care expenses?

Correct Answer
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B

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

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

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

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

Correct Answer
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Correct Answer
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When stock options are exercised they are converted into actual employer stock.

Correct Answer
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One primary purpose of equity compensation is to motivate employees.

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

Correct Answer
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How is the bargain element for a stock option calculated?

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

Correct Answer
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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?

Correct Answer
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B

Stock options will always provide employees with future compensation.

Correct Answer
verified

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

Correct Answer
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True

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

Correct Answer
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Exam 12: Compensation

Rachel receives employer provided health insurance.The employer's cost of the health insurance is $6,000 annually.What is her employer's after-tax cost of providing the health insurance,assuming that its marginal tax rate is 35 percent?

Correct AnswerverifiedShow Answer

When a CEOs salary exceeds $1,000,000,the employee _____ taxed on the entire amount,and the employer ______ allowed a deduction on the entire amount.

Correct AnswerverifiedShow Answer

Which of the following statements concerning cafeteria plans is true?

Correct AnswerverifiedShow Answer

Which of the following is false regarding dependent care expenses?

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When stock options are exercised they are converted into actual employer stock.

Correct AnswerverifiedShow Answer

One primary purpose of equity compensation is to motivate employees.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How is the bargain element for a stock option calculated?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedB

Stock options will always provide employees with future compensation.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

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

Correct AnswerverifiedShow Answer

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When a CEOs salary exceeds $1,000,000,the employee _ taxed on the entire amount,and the employer __ allowed a deduction on the entire amount.

Correct Answer
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B

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B

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True

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