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Exam 12: Compensation

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Question 31

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Kaijsa received 20 NQOs (each option gives her the right to purchase 30 shares of stock for $8 per share)from her employer at the time she started working, when the stock price was $9 per share. Now that the share price is $18 per share, she intends to exercise all of her options. If Kaijsa holds the shares for two years and sells them when the market price is $25, what is the amount of the deduction and tax savings her employer will receive (assume the employer's marginal tax rate is 21 percent)?

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$6,000 deduction and $1,260 in tax savin...

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Question 32

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Employees may exclude from income items such as occasional theater tickets, T-shirts, or a Thanksgiving turkey.

A) True
B) False

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Question 33

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For compensation plans adopted by a publicly traded company in the current year, when a CEO's salary exceeds $1,000,000, the employee ______ taxed on the entire amount, and the employer ______ allowed a deduction on the entire amount.

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

Suzanne received 56 ISOs (each option gives her the right to purchase 56 shares of stock for $8 per share)at the time she started working, when the stock price was $14.50 per share. Three years later, when the share price was $26.20 per share, she exercised all of her options. How much cash will Suzanne need on the exercise date of the stock options?

Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,540 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 $6,900. Lina's employer has a 21 percent marginal tax rate. What would be the after-tax cost to Lina's employer to provide her with health insurance?

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

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 for $225, was sold to Francis for $250, and the employer's average gross profit percentage is 30 percent. What amount of the discount must be included in Francis's income?

Frederique works for a furniture retailer. The shop allows all employees to purchase 10 pieces of furniture per year at a discount. This year Frederique purchased eight pieces. She gave three pieces as a gift to her brother as a wedding present. Her employer's average gross profit percentage is 25 percent. Each piece was 20 percent off of normal retail prices and in all cases the employee price exceeded the employer's cost. What amount of the discount must be included in Frederique's income?

Employers computing taxable income under the accrual method to unrelated taxpayers 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 two and a half months after the employer's year-end.

Suzanne received 21 ISOs (each option gives her the right to purchase 21 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 $24 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 $34, how much gain will Suzanne recognize on the sale and how much tax will she pay, assuming her marginal tax rate is 37 percent?

Grace's employer is now offering group-term life insurance. The company will provide each employee with $165,000 of group-term life insurance. It costs Grace's employer $815 to provide this amount of insurance to Grace each year. Assuming that Grace is 53 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:

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?

Annika's employer provides each employee with up to $195 of monthly vouchers for public transportation. What is the amount that Annika must include into income with respect to her benefit in 2020?

Stevie recently received 1,080 shares of restricted stock from her employer, Nicks Corporation, when the share price was $9 per share. Stevie's restricted shares vested three years later when the market price was $12. Stevie held the shares for a little more than a year and sold them when the market price was $15. Assuming Stevie made a section 83(b) election, what is the amount of Stevie's ordinary income with respect to the restricted stock?

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 25 percent, what amount must Jane include in income?

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $12 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 exercises 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 at the time of the sale?

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

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

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?