Question 1

Which of the following is true regarding stock options?

Accepted Answer

A) A loss is realized when stock options lapse. 
B) There is typically no tax effect on the grant date. 
C) Income recognized on the exercise date is greater for incentive stock options than nonqualified options. 
D) The bargain element on a nonqualified option is taxed to employees at capital gain rates. 
A) A loss is realized when stock options lapse. 
B) There is typically no tax effect on the grant date. 
C) Income recognized on the exercise date is greater for incentive stock options than nonqualified options. 
D) The bargain element on a nonqualified option is taxed to employees at capital gain rates. B

Question 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?

Accepted Answer

A) $0. 
B) $2,000 loss. 
C) $4,000 gain. 
D) $4,000 loss. 
A) $0. 
B) $2,000 loss. 
C) $4,000 gain. 
D) $4,000 loss. D

Question 3

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 and that his marginal tax rate is 24 percent,what is the amount of Rick's income inclusion and tax liability upon the sale of the stock?

Accepted Answer

$5,000 and $750.$5,000 [500 shares × ($15 market price on sale date − $5 market price on grant date)] and $1,000 tax ($5,000 × 15 percent preferential rate).

Question 4

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 35 percent,what is the amount of Rick's ordinary income amount and tax liability at the time of the income inclusion?

Accepted Answer

$2,500 and $875 500 shares × $

Question 5

Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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) $225 of employer-provided parking. 
D) Automobile allowance. 
A) Personal use of corporate jet. 
B) $1,000,000 group-term life insurance policy. 
C) $225 of employer-provided parking. 
D) Automobile allowance.

Question 8

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

Accepted Answer

A) The discount relates to goods or services of the employer. 
B) The discount on services doesn't exceed 20 percent of the price offered to customers. 
C) The discount can be elected up to five times annually. 
D) The employee discount on goods is not greater than employer's average gross profit. 
A) The discount relates to goods or services of the employer. 
B) The discount on services doesn't exceed 20 percent of the price offered to customers. 
C) The discount can be elected up to five times annually. 
D) The employee discount on goods is not greater than employer's average gross profit.

Question 9

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?

Accepted Answer

$1,290,000

Question 10

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).Lina's employer has a 21 percent marginal tax rate.What is the maximum amount of before-tax salary Lina would give up to receive health insurance? (Round your answer to the nearest whole number.)

Accepted Answer

$12,308 $8

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

Employers cannot discriminate between highly and non-highly compensated employees when providing taxable fringe benefits.

Accepted Answer

A) True 
 B)False

Question 13

For compensation plans adopted by a company in 2019,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.

Accepted Answer

A) is; is 
B) is; is not 
C) is not; is 
D) is not; is not 
A) is; is 
B) is; is not 
C) is not; is 
D) is not; is not

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements concerning cafeteria plans is true?

Accepted Answer

A) Allows employees to choose from a menu of fringe benefits or to choose cash. 
B) Most of the menu choices are nontaxable fringe benefits. 
C) Any receipt of cash option that is elected is treated as taxable compensation. 
D) All of the statements are true. 
A) Allows employees to choose from a menu of fringe benefits or to choose cash. 
B) Most of the menu choices are nontaxable fringe benefits. 
C) Any receipt of cash option that is elected is treated as taxable compensation. 
D) All of the statements are true.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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?

Accepted Answer

A) $0. 
B) $5,000. 
C) $8,000. 
D) $11,000. 
A) $0. 
B) $5,000. 
C) $8,000. 
D) $11,000.

Question 19

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 gain on the sale of the stock? Assuming a marginal tax rate of 37 percent,what is Rick's tax on the sale of the stock?

Accepted Answer

$1,500 and $300.$1,500 [500 sh

Question 20

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

Accepted Answer

A) True 
 B)False

Which of the following is true regarding stock options?

Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.

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

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

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

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?

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.

Employers cannot discriminate between highly and non-highly compensated employees when providing taxable fringe benefits.

For compensation plans adopted by a company in 2019,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.

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

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

Which of the following statements concerning cafeteria plans is true?

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

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

An Introduction to Tax

Tax Compliance,the Irs,and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview,dependents,and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation,reorganization,and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 12: Compensation

Which of the following is true regarding stock options?

Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.

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

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

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

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?

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.

Employers cannot discriminate between highly and non-highly compensated employees when providing taxable fringe benefits.

For compensation plans adopted by a company in 2019,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.

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

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

Which of the following statements concerning cafeteria plans is true?

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

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

An Introduction to Tax

Tax Compliance,the Irs,and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview,dependents,and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income,deductions,and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation,reorganization,and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Ustaxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

For compensation plans adopted by a company in 2019,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.