Exam 12: Compensation

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

Big Bucks, a publicly traded corporation, paid its CEO $1,590,000 of base compensation for the year. What is the after-tax cost of paying the salary assuming a 21 percent marginal tax rate?

Employees complete a Form W-2 to specify their income tax withholding.

Aharon exercises 10 stock options awarded several years ago. The following information pertains to the options: (1)each option gives the employee the right to buy 10 shares, (2)the market price on the grant date was $7, (3)the strike price is $10, and (4)the market price on the exercise date was $15. How much will it cost Aharon to purchase the options on the exercise date?

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?

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

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.

Tom recently received 2,180 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?

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?

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

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 is not an example of a nontaxable fringe benefit?

Rachel receives employer-provided health insurance. The employer's cost of the health insurance is $6,000 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 and the employer is profitable?

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.)

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

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?

Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,200 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.)

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.)

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?