Question 1

Up to $5,250 of educational benefits can be excluded from an employee's compensation.

Accepted Answer

A) True 
 B)False  True

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehiclesper 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?

Accepted Answer

A) $0 
B) $2,500 
C) $2,950 
D) $22,000 
A) $0 
B) $2,500 
C) $2,950 
D) $22,000

Question 5

Brandy graduated from Vanderbilt with her bachelor's degree recently. She works for Walton & Company CPAs. The firm pays her tuition ($8,000 per year)for her so that she can receive her MBA. How much of the $8,000 tuition benefit does Brandy need to include in her income?

Accepted Answer

$2,750. Up to $5,250

Question 6

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.

Question 7

Employers computing taxable income receive a deduction for reasonable salary and wages paid to employees.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Fringe benefits are generally a form of noncash compensation.

Accepted Answer

A) True 
 B)False

Question 10

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?

Accepted Answer

A) $0 
B) $1,200 
C) $3,800 
D) $5,000 
A) $0 
B) $1,200 
C) $3,800 
D) $5,000

Question 11

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 s

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Rachel receives employer-provided health insurance. The employer's cost of the health insurance is $5,700 annually. What is her employer's after-tax cost of providing the health insurance, assuming that the employer's marginal tax rate is 21 percent andthe employer is profitable?

Accepted Answer

A) $0 
B) $1,197 
C) $4,503 
D) $5,700 
A) $0 
B) $1,197 
C) $4,503 
D) $5,700

Question 14

Which of the following regarding the Form W-4 is incorrect?

Accepted Answer

A) It determines an employee's income tax withholding. 
B) Employees can claim dependents. 
C) Employees can specify additional amounts to be withheld each month. 
D) The form can only be adjusted at the beginning of the year or start of employment. 
A) It determines an employee's income tax withholding. 
B) Employees can claim dependents. 
C) Employees can specify additional amounts to be withheld each month. 
D) The form can only be adjusted at the beginning of the year or start of employment.

Question 15

On Form W-4, an employee can change their withholding through claiming dependents, other adjustments for non-wage income or deductions, and choosing extra withholding.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

Leesburg paid its employee $218,000 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

${{[a(4)]:#,###}}.
$

Question 18

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 2020, Tanya selected $3,480 ($290 per month)of parking, $1,720 in 401(k)contributions, and $800 of cash. How much must Tanya include in taxable income?

Accepted Answer

A) $0 
B) $1,040 
C) $3,480 
D) $4,280 
A) $0 
B) $1,040 
C) $3,480 
D) $4,280

Question 19

Health insurance is an example of a nontaxable fringe benefit.

Accepted Answer

A) True 
 B)False

Question 20

A section 83(i)election freezes the value of restricted stock for compensation purposes on the vesting date.

Accepted Answer

A) True 
 B)False

Exam 12: Compensation

Up to $5,250 of educational benefits can be excluded from an employee's compensation.

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

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

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehiclesper 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?

Brandy graduated from Vanderbilt with her bachelor's degree recently. She works for Walton & Company CPAs. The firm pays her tuition ($8,000 per year)for her so that she can receive her MBA. How much of the $8,000 tuition benefit does Brandy need to include in her income?

Which of the following is true regarding stock options?

Employers computing taxable income receive a deduction for reasonable salary and wages paid to employees.

Fringe benefits are generally a form of noncash 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?

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

Rachel receives employer-provided health insurance. The employer's cost of the health insurance is $5,700 annually. What is her employer's after-tax cost of providing the health insurance, assuming that the employer's marginal tax rate is 21 percent andthe employer is profitable?

Which of the following regarding the Form W-4 is incorrect?

On Form W-4, an employee can change their withholding through claiming dependents, other adjustments for non-wage income or deductions, and choosing extra withholding.

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

Leesburg paid its employee $218,000 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)?

Health insurance is an example of a nontaxable fringe benefit.

A section 83(i)election freezes the value of restricted stock for compensation purposes on the vesting date.

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 Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters