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Exam 12: Compensation

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Question 41

True/False

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An employee's income with respect to restricted stock is the fair market value on the vesting date.

A) True
B) False

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Question 42

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

A) The withholding tables are designed so that employee withholding approximates the tax liability.
B) Large itemized deductions require the need for additional withholding.
C) The withholding tables vary based on filing status.
D) Extra allowances can be claimed and reduce withholding.

E) All of the above
F) A) and C)

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Question 43

True/False

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

Which of the following statements regarding restricted stock is False?

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)?

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

Which of the following is False regarding dependent care expenses?

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

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.

When a publicly traded CEO's salary exceeds $1,000,000, the employee ________ taxed on the entire amount, and the employer ________ allowed a deduction on the entire amount.

Up to $10,000 of dependent care expenses can be excluded from an employee's compensation.

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

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 2½ months after the employer's year-end.

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. EXHIBIT 12-08 Uniform Premiums for $1,000 of Group-Term Life Insurance Protection

Stevie recently received 1,000 shares of restricted stock from her employer, Nicks Corporation, when the share price was $8 per share. Stevie's restricted shares vested three years later when the market price was $11. Stevie held the shares for a little more than a year and sold them when the market price was $16. What is the amount of Stevie's ordinary income with respect to the restricted stock?

Stock options will always provide employees with future compensation.

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

Employer's expense for stock options is typically recognized earlier for book than tax purposes.

Fringe benefits are generally a form of non-cash compensation.

One primary purpose of equity compensation is to motivate employees.