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Exam 12: Compensation

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Question 51

Multiple Choice

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Tanya's employer offers a cafeteria plan that allows employees to choose among a number of benefits. Each employee is allowed $6,000 in benefits. For 2014, Tanya selected $3,200 of parking, $2,200 in 401(k) contributions, and $800 of cash. How much must Tanya include in taxable income?

A) $0.
B) $1,000.
C) $1,120.
D) $4,000.

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

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Question 52

True/False

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Cornhusker Bank reimburses employees for dues to the local bankers association. The reimbursement is includible in the employee's income.

A) True
B) False

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Question 53

Multiple Choice

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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.

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?

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?

Qualified employee discounts allow employees to purchase employer goods at a discount.

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

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

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

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

Employers sometimes pay a gross-up to employees to cover taxes associated with taxable fringe benefits they provide.

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?

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

Which of the following is false regarding dependent care expenses?

Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share) at the time she started working when the stock price was $14 per share. Three years later, when the share price was $23 per share, she exercised all of her options. How much cash will Suzanne need on the exercise date?

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 30 percent?

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

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

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?