Question 1

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. B

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

How is the bargain element for a stock option calculated?

Accepted Answer

A)  The difference between the strike price and the market price on the date of grant. 
B)  The difference between the market price on the exercise date and the market price on the date of grant. 
C)  The difference between the market price on the exercise date and the strike price. 
D)  The difference between the market price on the sale date and the strike price. 
A)  The difference between the strike price and the market price on the date of grant. 
B)  The difference between the market price on the exercise date and the market price on the date of grant. 
C)  The difference between the market price on the exercise date and the strike price. 
D)  The difference between the market price on the sale date and the strike price. C

Question 4

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. How much gain will Maren recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?

Accepted Answer

A)  $0 gain and $0 tax. 
B)  $500 gain and $75 tax. 
C)  $500 gain and $175 tax. 
D)  $1,200 gain and $180 tax. 
A)  $0 gain and $0 tax. 
B)  $500 gain and $75 tax. 
C)  $500 gain and $175 tax. 
D)  $1,200 gain and $180 tax.

Question 5

Employers computing taxable income under the accrual method 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 6

Which of the following pairs of items is not needed to calculate the after-tax proceeds for a same-day sale?

Accepted Answer

A)  Strike price and market price on exercise date. 
B)  Strike price and market price on grant date. 
C)  Market price on sale date and market price on exercise date. 
D)  Market price on sale date and marginal tax rate. 
A)  Strike price and market price on exercise date. 
B)  Strike price and market price on grant date. 
C)  Market price on sale date and market price on exercise date. 
D)  Market price on sale date and marginal tax rate.

Question 7

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

Question 8

Health insurance is an example of a nontaxable fringe benefit.

Accepted Answer

A) True 
 B)False

Question 9

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. If Hazel holds the shares for two years and sells them when the market price is $25, how much gain will Hazel recognize on the sale and how much tax will she pay assuming her marginal tax rate is 25 percent?

Accepted Answer

The answer of Hazel received 20 NQOs (each option gives...

Question 10

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 11

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

Accepted Answer

A)  All undergraduate tuition expenses can be excluded. 
B)  Only educational benefits from public universities can be excluded. 
C)  Up to $5,250 in tuition benefits can be excluded. 
D)  All graduate tuition expenses are included. 
A)  All undergraduate tuition expenses can be excluded. 
B)  Only educational benefits from public universities can be excluded. 
C)  Up to $5,250 in tuition benefits can be excluded. 
D)  All graduate tuition expenses are included.

Question 12

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 2014, Tanya selected $3,200 of parking, $2,200 in 401(k) contributions, and $800 of cash. How much must Tanya include in taxable income?

Accepted Answer

A)  $0. 
B)  $1,000. 
C)  $1,120. 
D)  $4,000. 
A)  $0. 
B)  $1,000. 
C)  $1,120. 
D)  $4,000.

Question 13

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

Accepted Answer

A)  Form I-9. 
B)  Form W-2. 
C)  Form W-4. 
D)  Form 1099. 
A)  Form I-9. 
B)  Form W-2. 
C)  Form W-4. 
D)  Form 1099.

Question 14

Hope'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 Hope's employer $700 to provide this amount of insurance to Hope each year. Assuming that Hope is 27 years old, use the table to determine the monthly premium that Hope must include in income as a result of receiving the group-term life benefit? (ADD TABLE)

Accepted Answer

The answer of Hope's employer is now offering group-term life...

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements regarding compensation is false?

Accepted Answer

A)  Wages are usually paid by the hour. 
B)  Salary is usually a form of fixed compensation. 
C)  Bonuses are a form of compensation obtained if certain criteria are met. 
D)  Bonuses paid within 2½ months of year end are included in employee's compensation in the year they were earned. 
A)  Wages are usually paid by the hour. 
B)  Salary is usually a form of fixed compensation. 
C)  Bonuses are a form of compensation obtained if certain criteria are met. 
D)  Bonuses paid within 2½ months of year end are included in employee's compensation in the year they were earned.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 one additional year 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?

Accepted Answer

The answer of Suzanne received 20 ISOs (each option gives...

Question 20

Employees will always prefer to receive incentive stock options over nonqualified stock options.

Accepted Answer

A) True 
 B)False

Exam 12: Compensation

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

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

How is the bargain element for a stock option calculated?

Employers computing taxable income under the accrual method 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 pairs of items is not needed to calculate the after-tax proceeds for a same-day sale?

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

Health insurance is an example of a nontaxable fringe benefit.

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 employer provided educational benefits is true?

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 2014, Tanya selected $3,200 of parking, $2,200 in 401(k) contributions, and $800 of cash. How much must Tanya include in taxable income?

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

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

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

Which of the following statements regarding compensation is false?

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

Employees will always prefer to receive incentive stock options over nonqualified stock options.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

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 of the Cfa Institute

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