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Exam 12: Compensation

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Question 1

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

A) True
B) False

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Question 2

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Annika's employer provides each employee with up to $200 of monthly vouchers for public transportation. What is the amount that Annika must include into income with respect to her benefit in 2019?

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$2,400 benefit less the $3,...

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Question 3

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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?

Flexible spending accounts allow employees to set aside before-tax dollars for medical and dependent care expenses.

Taxable fringe benefits include automobile allowances, gym memberships, and personal-use tickets to the theater or sporting events.

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

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

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

Which of the following is true regarding stock options?

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. Assuming that Rick made an election under section 83(b)when the stock was granted and that his marginal tax rate is 24 percent, what is the amount of Rick's income inclusion and tax liability upon the sale of the stock?

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

Jane is an employee of Rohrs Golf Emporium. The shop allows employees to purchase equipment at significant discount. This year Jane purchased several new items to improve her game. If the employer's average gross profit percentage is 30 percent, what amount must Jane include in income?

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

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?

Which of the following statements regarding compensation is false?

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?

Without an election, the income from an employee's restricted stock is measured on the grant date.

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?

Hotel employees can receive free lodging on a space-available basis without incurring compensation.

Big Bucks, a publicly traded corporation, paid its CEO $1,500,000 of base compensation for the year. What is the after-tax cost of paying the salary assuming a 21 percent marginal tax rate?