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Exam 12: Compensation

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Question 31

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Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,000 to purchase if she pays for it herself (Lina's AGI is too high to receive any tax deduction for the insurance as a medical expense). Because of group discounts, her employer can purchase the insurance for $6,000. Lina's employer has a 30 percent marginal tax rate. What would be the after-tax cost to Lina's employer to provide her with health insurance?

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Question 32

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Which of the following is true regarding stock options?

A) A loss is realized when stock options lapse.
B) There is typically no tax effect on the grant date.
C) Income recognized on the exercise date is greater for incentive stock options than nonqualified options.
D) The bargain element on a nonqualified option is taxed to employees at capital gain rates.

E) A) and C)
F) A) and D)

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Question 33

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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.

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?

One purpose of Form W-4 is to determine an employee's withholding.

Employers computing taxable income receive a deduction for salary and wages paid to employees.

Leesburg paid its employee $200,000 of compensation for the year. What is the after-tax cost of paying the salary assuming a 30 percent marginal tax rate (ignore payroll taxes)?

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 30 percent, what is the amount of Rick's income inclusion and tax liability at the time of the income inclusion?

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, what is the amount of Rick's income inclusion and tax liability upon the sale of the stock?

Annika's employer provides only its executives with parking benefits. The fair market value of the annual parking benefit is $4,800. What is the amount Annika must include into income with respect to her parking benefit in 2014?

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?

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

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

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 2014?

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

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

Big Bucks paid its CEO $1,500,000 of compensation for the year. What is the after-tax cost of paying the salary assuming a 30 percent marginal tax rate?

The use of restricted stock is rising relative to the use of stock options.

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

Which of the following statements concerning cafeteria plans is true?