Question 1

Which of the following statements is true regarding the $1,000,000 limit on covered employees for publicly traded companies?

Accepted Answer

A) The limitation applies to all employees. 
B) The limitation applies to all officers. 
C) The limitation applies only to the CEO and three other highest compensated officers. 
D) The limitation applies only to the CEO,CFO,and three other highest compensated officers and all covered employees from previous years. 
A) The limitation applies to all employees. 
B) The limitation applies to all officers. 
C) The limitation applies only to the CEO and three other highest compensated officers. 
D) The limitation applies only to the CEO,CFO,and three other highest compensated officers and all covered employees from previous years.

Question 2

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 21 percent marginal tax rate.What would be the after-tax cost to Lina's employer to provide her with health insurance?

Accepted Answer

$4,740 $6,

Question 3

Current compensation is usually comprised of salary,wages,and bonuses.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Which of the following benefits cannot be excluded as a no-additional-cost service fringe benefit?

Accepted Answer

A) Free tax return preparation from a client. 
B) Complimentary dry cleaning for employees at a laundry company. 
C) A car wash at an automobile dealership. 
D) Free local phone service for phone company employees. 
A) Free tax return preparation from a client. 
B) Complimentary dry cleaning for employees at a laundry company. 
C) A car wash at an automobile dealership. 
D) Free local phone service for phone company employees.

Question 6

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 the current year,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?

Accepted Answer

$1,500 Employees can exclude u

Question 7

Leesburg paid its employee $200,000 of compensation for the year.What is the after-tax cost of paying the salary assuming a 21 percent marginal tax rate (ignore payroll taxes)?

Accepted Answer

$158,000.$

Question 8

How is the bargain element for a stock option calculated?

Accepted Answer

A) The difference between the strike price and the market price on the date of grant. 
B) The difference between the market price on the exercise date and the market price on the date of grant. 
C) The difference between the market price on the exercise date and the strike price. 
D) The difference between the market price on the sale date and the strike price. 
A) The difference between the strike price and the market price on the date of grant. 
B) The difference between the market price on the exercise date and the market price on the date of grant. 
C) The difference between the market price on the exercise date and the strike price. 
D) The difference between the market price on the sale date and the strike price.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is false regarding dependent-care expenses?

Accepted Answer

A) Up to $5,000 of reimbursed expenses can qualify. 
B) Employers may discriminate among employees. 
C) Dependent children under 13 qualify. 
D) Spouses who are physically or mentally unable to care for themselves qualify. 
A) Up to $5,000 of reimbursed expenses can qualify. 
B) Employers may discriminate among employees. 
C) Dependent children under 13 qualify. 
D) Spouses who are physically or mentally unable to care for themselves qualify.

Question 11

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

Accepted Answer

A) Taxable wages,tips,and compensation. 
B) Social Security withholding. 
C) Value of stock options granted during the year. 
D) Federal and state income tax withholding. 
A) Taxable wages,tips,and compensation. 
B) Social Security withholding. 
C) Value of stock options granted during the year. 
D) Federal and state income tax withholding.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Kimberly's employer provides her with a personal travel allowance of $10,000 annually.Her marginal tax rate is 32 percent.Her employer has a marginal tax rate of 21 percent.What is Kimberly's after-tax benefit,ignoring payroll taxes?

Accepted Answer

$6,800.The after-tax

Question 15

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.
EXHIBIT 12-10 Uniform Premiums for $1,000 of Group-Term Life Insurance Protection

Accepted Answer

$9 per month.$200,00

Question 16

Which of the following is not a purpose of equity-based compensation?

Accepted Answer

A) Provides both risk and incentives to employees. 
B) Motivates employees by aligning employee and employer incentives. 
C) Avoids compensation limits for certain publicly traded company executives. 
D) Provides a low- or no-cost form of compensation. 
A) Provides both risk and incentives to employees. 
B) Motivates employees by aligning employee and employer incentives. 
C) Avoids compensation limits for certain publicly traded company executives. 
D) Provides a low- or no-cost form of compensation.

Question 17

Tasha receives reimbursement from her employer for dependent-care expenses for up to $8,000.Tasha applies for and receives reimbursement of $6,000 for her 10-year-old son.How much,if any,is includible in her income?

Accepted Answer

A) $0. 
B) $1,000. 
C) $3,000. 
D) $6,000. 
A) $0. 
B) $1,000. 
C) $3,000. 
D) $6,000.

Question 18

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $12 per share)from his employer.At the time he started working,the stock price was $11 per share.Now that the share price is $25 per share,he exercises all of the options.Two years later Bad Brad sells the stock for $27 per share.What is Bad Brad's basis in his stock for purposes of calculating the gain or loss at the time of the sale?

Accepted Answer

A) $7,200. 
B) $7,800. 
C) $15,000. 
D) $16,200. 
A) $7,200. 
B) $7,800. 
C) $15,000. 
D) $16,200.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 12: Compensation

Which of the following statements is true regarding the $1,000,000 limit on covered employees for publicly traded companies?

Current compensation is usually comprised of salary,wages,and bonuses.

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

Which of the following benefits cannot be excluded as a no-additional-cost service fringe benefit?

Leesburg paid its employee $200,000 of compensation for the year.What is the after-tax cost of paying the salary assuming a 21 percent marginal tax rate (ignore payroll taxes)?

How is the bargain element for a stock option calculated?

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

Which of the following is false regarding dependent-care expenses?

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

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

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

Kimberly's employer provides her with a personal travel allowance of $10,000 annually.Her marginal tax rate is 32 percent.Her employer has a marginal tax rate of 21 percent.What is Kimberly's after-tax benefit,ignoring payroll taxes?

Which of the following is not a purpose of equity-based compensation?

Tasha receives reimbursement from her employer for dependent-care expenses for up to $8,000.Tasha applies for and receives reimbursement of $6,000 for her 10-year-old son.How much,if any,is includible in her income?

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

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

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