Exam 12: Compensation

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.

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

Which of the following refers to the date stock options are awarded to an employee?

Health insurance is an example of a nontaxable fringe benefit.

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

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.

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

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

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 income on the vesting date? Assuming a marginal tax rate of 30 percent,what is Rick's tax on the restricted stock?

Qualified employee discounts allow employees to purchase employer goods at a discount.

Which of the following statements regarding restricted stock is false?

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?

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

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

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

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

Employers sometimes pay a "gross-up" to employees to cover taxes associated with taxable fringe benefits they provide.

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

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