Exam 12: Compensation

Francis works for a local fly fishing shop. The shop allows employees to purchase two fly rods per year at a discount. This year, Francis purchased one rod. The rod normally retails for $300, was purchased for $225, was sold to Francis for $250, and the employer's average gross profit percentage is 30 percent. What amount of the discount must be included in Francis' income?

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

An employee can indicate whether they want an additional amount withheld for payrolltaxes on the Form W-4.

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

The date on which stock options are given to the employee is called the exercise date.

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 willSuzanne need on the exercise date?

Kimberly's employer provides her with a personal travel allowance of $10,000 annually. Her marginal tax rate is 30 percent. Her employer has a marginal tax rate of 35 percent. What is Kimberly's after-tax benefit, ignoring payroll taxes?

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

Which of the following is true regarding stock options?

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 30 percent, what is the amount of Rick's income inclusion and tax liability upon the sale of the stock?

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

Flexible spending accounts allow employees to set aside before-tax dollars for medical and 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 $13 per share. Three years later, when the share price was $23 per share, she exercised all of her options. If Suzanne holds the shares for ten additional months and sells them when the market price is $30, how much gain will Suzanne recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?

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?

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 2017, Tanyaselected $3,300 ($275 per month) of parking, $2,200 in 401(k) contributions, and $800 of cash. How much must Tanya include in taxable income?

Annika's employer provides only its executives with parking benefits. The fair market value of the annual parking benefit is $4,800 ($400 per month). What is the amount Annika must include into income with respect to her parking benefit in 2017?

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

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 39.6 percent, what is Rick's tax on the sale of the stock?

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

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