Question 1

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

Accepted Answer

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.The market price on grant date is not needed.E) All of the above
F) B) and C)

Question 2

Some employers believe that restricted stock is superior to stock options.

Accepted Answer

A) True 
 B)False

Question 3

Employees complete a Form W-2 to specify their income tax withholding.Employees use Form W-4 to specify their withholding amounts.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

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.Itemized deductions reduce the withholding required by the taxpayer.E) All of the above
F) B) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

When an employee has more than one employer during the year and the combined compensation exceeds the Social Security wage base,the excess Social Security is treated as an additional income tax payment.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Which of the following forms is filled out by an employee,who is a citizen,at the beginning of an employment relationship?

Accepted Answer

A)  Form W-9.
B)  Form W-2.
C)  Form W-4.
D)  Form 1099.Employees fill out a W-4 to indicate their tax status,number of dependents and other items that affect income tax withholding.E) A) and D)
F) B) and C)

Question 13

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

Accepted Answer

A)  Personal use of corporate jet.
B)  $1,000,000 group term life insurance policy.
C)  $200 of monthly employer provided parking.
D)  Automobile allowance.Employer provided parking is nontaxable up to $245 per month.E) A) and B)
F) A) and C)

Question 14

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

Accepted Answer

A)  Grant date.
B)  Exercise date.
C)  Lapse date.
D)  Vesting date.The grant date is the date on which an employee receives the stock options.E) A) and D)
F) A) and C)

Question 15

Health insurance is an example of a nontaxable fringe benefit.

Accepted Answer

A) True 
 B)False

Question 16

The employee's income for restricted stock is typically measured on the grant date.Income for restricted stock is typically measured on the vesting date.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Bonnie's employer provides her with an annual dinner club membership costing $5,000.Her marginal tax rate is 25 percent.Her employer has a marginal tax rate of 35 percent.What is Bonnie's after-tax benefit?

Accepted Answer

A)  $0.
B)  $1,250.
C)  $3,750.
D)  $5,000.The after-tax benefit is the $5,000 benefit less the $1,250 ($5,000 × 25 percent)  of tax.E) A) and B)
F) A) and D)

Question 19

Which of the following is false regarding a section 83(b)  election?

Accepted Answer

A)  The election freezes the value of the employee's compensation at the grant date.
B)  The election is an important tax planning tool if the stock is expected to increase in value.
C)  The election must be made within 30 days of the grant date.
D)  If an employee leaves before the vesting date any loss is limited to $3,000.Employees are not allowed to deduct a loss if restricted stock subject to a section 83(b)  election is forfeited.E) A) and B)
F) A) and C)

Question 20

A section 83(b) election freezes the value of restricted stock for compensation purposes on the vesting date.The 83(b) election values the restricted stock on the grant date instead of the vesting date.

Accepted Answer

A) True 
 B)False

Exam 12: Compensation

Employees complete a Form W-2 to specify their income tax withholding.Employees use Form W-4 to specify their withholding amounts.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The employee's income for restricted stock is typically measured on the grant date.Income for restricted stock is typically measured on the vesting date.

Correct AnswerverifiedShow Answer

Some employers believe that restricted stock is superior to stock options.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following forms is filled out by an employee,who is a citizen,at the beginning of an employment relationship?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When an employee has more than one employer during the year and the combined compensation exceeds the Social Security wage base,the excess Social Security is treated as an additional income tax payment.

Correct AnswerverifiedShow Answer

Health insurance is an example of a nontaxable fringe benefit.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A section 83(b) election freezes the value of restricted stock for compensation purposes on the vesting date.The 83(b) election values the restricted stock on the grant date instead of the vesting date.

Correct AnswerverifiedShow Answer

Bonnie's employer provides her with an annual dinner club membership costing $5,000.Her marginal tax rate is 25 percent.Her employer has a marginal tax rate of 35 percent.What is Bonnie's after-tax benefit?

Correct AnswerverifiedShow Answer

Which of the following is false regarding a section 83(b) election?

Correct AnswerverifiedShow Answer

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