Question 1

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 2

Grace'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 Grace's employer $700 to provide this amount of insurance to Grace each year. Assuming that Grace is 43 years old, use the table to determine the monthly premium that Grace must include in income as a result of receiving the group-term life benefit.
EXHIBIT 12-08 Uniform Premiums for $1,000 of Group-Term Life Insurance Protection

Accepted Answer

A)  $0. 
B)  $15.00. 
C)  $22.00. 
D)  $58.33. 
A)  $0. 
B)  $15.00. 
C)  $22.00. 
D)  $58.33.

Question 3

Employers computing taxable income under the accrual method to unrelated taxpayers may deduct wages accrued as compensation expense in one year and paid in the subsequent year, as long as the company makes the payment within 2½ months after the employer's year-end.

Accepted Answer

A) True 
 B)False

Question 4

Fringe benefits are generally a form of non-cash compensation.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

When a publicly traded CEO's salary exceeds $1,000,000, the employee ________ taxed on the entire amount, and the employer ________ allowed a deduction on the entire amount.

Accepted Answer

A)  is; is 
B)  is; is not 
C)  is not; is 
D)  is not; is not 
A)  is; is 
B)  is; is not 
C)  is not; is 
D)  is not; is not

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Stock options will always provide employees with future compensation.

Accepted Answer

A) True 
 B)False

Question 9

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?

Accepted Answer

A)  $0. 
B)  $5,000. 
C)  $8,000. 
D)  $11,000. 
A)  $0. 
B)  $5,000. 
C)  $8,000. 
D)  $11,000.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

The date on which stock options are no longer subject to forfeiture is called the vesting date.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements regarding restricted stock is False?

Accepted Answer

A)  Like stock options, restricted stock has to vest before it can be sold. 
B)  Like nonqualified stock options, the employee's income inclusion for restricted stock is the bargain element. 
C)  Even if the value of restricted stock decreases from the price on the grant date, it retains some value to the employee. 
D)  There is no effective tax planning elections for restricted stock. 
A)  Like stock options, restricted stock has to vest before it can be sold. 
B)  Like nonqualified stock options, the employee's income inclusion for restricted stock is the bargain element. 
C)  Even if the value of restricted stock decreases from the price on the grant date, it retains some value to the employee. 
D)  There is no effective tax planning elections for restricted stock.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

On Form W-4, an employee can only claim one allowance for each personal or dependency exemption that will be claimed on the employee's income tax return.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements regarding income tax withholding is incorrect?

Accepted Answer

A)  The withholding tables are designed so that employee withholding approximates the tax liability. 
B)  Large itemized deductions require the need for additional withholding. 
C)  The withholding tables vary based on filing status. 
D)  Extra allowances can be claimed and reduce withholding. 
A)  The withholding tables are designed so that employee withholding approximates the tax liability. 
B)  Large itemized deductions require the need for additional withholding. 
C)  The withholding tables vary based on filing status. 
D)  Extra allowances can be claimed and reduce withholding.

Question 17

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)?

Accepted Answer

$6,000 deduction and $1,260 in tax savin

Question 18

A cafeteria plan provides employees discounted meals at a company sponsored dining room.

Accepted Answer

A) True 
 B)False

Question 19

Up to $10,000 of dependent care expenses can be excluded from an employee's compensation.

Accepted Answer

A) True 
 B)False

Question 20

One primary purpose of equity compensation is to motivate employees.

Accepted Answer

A) True 
 B)False

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

Employers computing taxable income under the accrual method to unrelated taxpayers may deduct wages accrued as compensation expense in one year and paid in the subsequent year, as long as the company makes the payment within 2½ months after the employer's year-end.

Fringe benefits are generally a form of non-cash compensation.

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

When a publicly traded CEO's salary exceeds $1,000,000, the employee taxed on the entire amount, and the employer allowed a deduction on the entire amount.

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

Stock options will always provide employees with future compensation.

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

Which of the following is False regarding dependent care expenses?

The date on which stock options are no longer subject to forfeiture is called the vesting date.

Which of the following statements regarding restricted stock is False?

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

On Form W-4, an employee can only claim one allowance for each personal or dependency exemption that will be claimed on the employee's income tax return.

Which of the following statements regarding income tax withholding is incorrect?

A cafeteria plan provides employees discounted meals at a company sponsored dining room.

Up to $10,000 of dependent care expenses can be excluded from an employee's compensation.

One primary purpose of equity compensation is to motivate employees.

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

Filters

Exam 12: Compensation

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

Employers computing taxable income under the accrual method to unrelated taxpayers may deduct wages accrued as compensation expense in one year and paid in the subsequent year, as long as the company makes the payment within 2½ months after the employer's year-end.

Fringe benefits are generally a form of non-cash compensation.

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

When a publicly traded CEO's salary exceeds $1,000,000, the employee ________ taxed on the entire amount, and the employer ________ allowed a deduction on the entire amount.

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

Stock options will always provide employees with future compensation.

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

Which of the following is False regarding dependent care expenses?

The date on which stock options are no longer subject to forfeiture is called the vesting date.

Which of the following statements regarding restricted stock is False?

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

On Form W-4, an employee can only claim one allowance for each personal or dependency exemption that will be claimed on the employee's income tax return.

Which of the following statements regarding income tax withholding is incorrect?

A cafeteria plan provides employees discounted meals at a company sponsored dining room.

Up to $10,000 of dependent care expenses can be excluded from an employee's compensation.

One primary purpose of equity compensation is to motivate employees.

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

Filters

When a publicly traded CEO's salary exceeds $1,000,000, the employee taxed on the entire amount, and the employer allowed a deduction on the entire amount.