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Exam 12: Compensation

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Question 21

True/False

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The date on which stock options are given to the employee is called the exercise date.

A) True
B) False

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Question 22

Multiple Choice

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Which of the following pairs of items is not needed to calculate the after-tax proceeds for a same-day sale?

A) Strike price and market price on exercise date.
B) Strike price and market price on grant date.
C) Market price on sale date and market price on exercise date.
D) Market price on sale date and marginal tax rate.

E) A) and B)
F) A) and C)

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Question 23

Multiple Choice

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

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 and sold them when the market price was $15. What is the amount of Rick's income on the vesting date? Assuming a marginal tax rate of 30 percent, what is Rick's tax on the restricted stock?

Hope'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 Hope's employer $700 to provide this amount of insurance to Hope each year. Assuming that Hope is 27 years old, use the table to determine the monthly premium that Hope must include in income as a result of receiving the group-term life benefit? (ADD TABLE)

An employer always receives a deduction for total compensation paid to a CEO.

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?

Up to $5,250 of educational benefits can be excluded from an employee's compensation.

Which of the following statements concerning cafeteria plans is true?

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.

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?

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 the employer's marginal tax rate is 35 percent?

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

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

Tom recently received 2,000 shares of restricted stock from his employer, Independence Corporation, when the share price was $10 per share. Tom's restricted shares vested three years later when the market price was $14. Tom held the shares for a little more than a year and sold them when the market price was $12. What is the amount of Tom's income or loss on the sale?

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 2014, 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?

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

Which of the following statements regarding restricted stock is false?

Which of the following is not a requirement of a "qualified employee discount"?

Tom recently received 2,000 shares of restricted stock from his employer, Independence Corporation, when the share price was $10 per share. Tom's restricted shares vested three years later when the market price was $14. Tom held the shares for a little more than a year and sold them when the market price was $20. What is the amount of Tom's income or loss on the vesting date?