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.

Question 2

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?

Accepted Answer

A) $90. 
B) $500. 
C) $700. 
D) $1,000. 
A) $90. 
B) $500. 
C) $700. 
D) $1,000.

Question 3

Hotel employees can receive free nights lodging on a space available basis without incurring compensation.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) Grant date. 
B) Exercise date. 
C) Lapse date. 
D) Vesting datE.The grant date is the date on which an employee receives the stock options. 
A) Grant date. 
B) Exercise date. 
C) Lapse date. 
D) Vesting datE.The grant date is the date on which an employee receives the stock options.

Question 7

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 8

Which of the following is not a purpose of equity-based compensation?

Accepted Answer

A) Provide both risk and incentives to employees. 
B) Motivate employees by aligning employee and employer incentives. 
C) Avoid compensation limits for certain publicly traded company executives. 
D) Provides a low or no cost form of compensation. 
A) Provide both risk and incentives to employees. 
B) Motivate employees by aligning employee and employer incentives. 
C) Avoid compensation limits for certain publicly traded company executives. 
D) Provides a low or no cost form of compensation.

Question 9

Which of the items is not correct regarding withholding?

Accepted Answer

A) Employees that also have self-employment income can have additional amounts of federal tax withheld to avoid estimated tax payments. 
B) Employees cannot claim an allowance for a child unless they are entitled to claim the child as a dependent. 
C) Employees can claim exempt status and avoid withholding. 
D) Married employees can choose to have income tax withholding on wages withheld at the higher single rates. 
A) Employees that also have self-employment income can have additional amounts of federal tax withheld to avoid estimated tax payments. 
B) Employees cannot claim an allowance for a child unless they are entitled to claim the child as a dependent. 
C) Employees can claim exempt status and avoid withholding. 
D) Married employees can choose to have income tax withholding on wages withheld at the higher single rates.

Question 10

Group-term life insurance is a fringe benefit that can be partially taxable and partially tax free.

Accepted Answer

A) True 
 B)False

Question 11

Big Bucks, a publicly traded corporation, paid its CEO $1,500,000 of base compensation for the year. What is the after-tax cost of paying the salary assuming a 30 percent marginal tax rate?

Accepted Answer

$1,200,000

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is a fringe benefit that employers can discriminate among employees?

Accepted Answer

A) No additional cost service. 
B) Qualified employee discount. 
C) Qualified transportation fringe. 
D) Employee educational assistancE.See Exhibit 12-12. 
A) No additional cost service. 
B) Qualified employee discount. 
C) Qualified transportation fringe. 
D) Employee educational assistancE.See Exhibit 12-12.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Frederique works for a furniture retailer. The shop allows all employees to purchase 10 pieces of furniture per year at a discount. This year Frederique purchased eight pieces. She gave three pieces as a gift to her brother as a wedding present. Her employer's average gross profit percentage is 25 percent. Each piece was 20 percent off of normal retail prices and in all cases the employee price exceeded the employer's cost. What amount of the discount must be included in Frederique's income?

Accepted Answer

$0
Explanation: Because the di

Question 16

An employee can indicate whether they want an additional amount withheld for payroll taxes on the Form W-4.

Accepted Answer

A) True 
 B)False

Question 17

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.The bargain element is simply the difference between the market price on the exercise 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.The bargain element is simply the difference between the market price on the exercise date and the strike price.

Question 18

Which of the following statements concerning cafeteria plans is true?

Accepted Answer

A) Allows employees to choose from a menu of fringe benefits or to choose cash. 
B) Most of the menu choices are nontaxable fringe benefits. 
C) Any receipt of cash option that is elected is treated at taxable compensation. 
D) All of these are true statements. 
A) Allows employees to choose from a menu of fringe benefits or to choose cash. 
B) Most of the menu choices are nontaxable fringe benefits. 
C) Any receipt of cash option that is elected is treated at taxable compensation. 
D) All of these are true statements.

Question 19

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.The market price on grant date is not needed. 
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.The market price on grant date is not needed.

Question 20

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 30 percent)

Accepted Answer

$6,000 deduction and $1,800 in tax savin

Exam 12: Compensation

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

Hotel employees can receive free nights lodging on a space available basis without incurring compensation.

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

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

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

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

Which of the following is not a purpose of equity-based compensation?

Which of the items is not correct regarding withholding?

Group-term life insurance is a fringe benefit that can be partially taxable and partially tax free.

Big Bucks, a publicly traded corporation, paid its CEO $1,500,000 of base compensation for the year. What is the after-tax cost of paying the salary assuming a 30 percent marginal tax rate?

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

Which of the following is a fringe benefit that employers can discriminate among employees?

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

An employee can indicate whether they want an additional amount withheld for payroll taxes on the Form W-4.

How is the bargain element for a stock option calculated?

Which of the following statements concerning cafeteria plans is true?

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

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

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

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