Exam 12: Compensation

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.How much income will Hazel recognize on the exercise date and how much tax will she pay,assuming her marginal tax rate is 24 percent?

The date on which stock options are no longer subject to forfeiture is called the vesting 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 21 percent)?

Lara,a single taxpayer with a 32 percent marginal tax rate,desires health insurance.The health insurance would cost Lara $5,000 to purchase if she pays for it herself (Lara's AGI is too high to receive any tax deduction for the insurance as a medical expense).Lara's employer has a 21 percent marginal tax rate.Ignoring payroll taxes,what is the maximum amount of before-tax salary Lara would give up to receive health insurance? (Round your answer to the nearest whole number.)

Hotel employees can receive free lodging on a space-available basis without incurring compensation.

Bonnie's employer provides her with an annual dinner club membership costing $5,000.Her marginal tax rate is 24 percent.Her employer has a marginal tax rate of 21 percent.What is Bonnie's after-tax benefit?

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.How much cash will Hazel need on the exercise date to exercise the stock option?

Kevin is the financial manager of Levingston BMW.The shop allows employees to purchase up to two vehicles per year at a discount.Levingston's average gross profit percentage is 15 percent.This year Kevin purchased a 530 model and a new M3. What amount must Kevin include in income?

Jane is an employee of Rohrs Golf Emporium.The shop allows employees to purchase equipment at significant discount.This year Jane purchased several new items to improve her game. If the employer's average gross profit percentage is 30 percent,what amount must Jane include in income?

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

Without an election,the income from an employee's restricted stock is measured on the grant date.

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?

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

Employers always prefer to award incentive stock options rather than nonqualified stock options.

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

If certain conditions are met,an apartment manager can exclude the fair market value of free rent from his or her income.

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

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?

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