Question 1

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.Employers may not discriminate with respect to dependent care expenses. 
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.Employers may not discriminate with respect to dependent care expenses. B

Question 2

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

Accepted Answer

A) True 
 B)False  True

Question 3

Tasha receives reimbursement from her employer for dependent care expenses for up to $8,000.Tasha applies for and receives reimbursement of $6,000 for her 10 year old son.How much,if any,is includible in her income?

Accepted Answer

A) $0. 
B) $1,000. 
C) $3,000. 
D) $6,000.Employees may exclude up to $5,000 of dependent care expenses. 
A) $0. 
B) $1,000. 
C) $3,000. 
D) $6,000.Employees may exclude up to $5,000 of dependent care expenses. B

Question 4

Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Which of the following benefits cannot be excluded as a no additional cost service fringe benefit?

Accepted Answer

A) Free tax return preparation from a client. 
B) Complementary dry cleaning for employees at a laundry company. 
C) A car wash at an automobile dealership. 
D) Free local phone service for phone company employees.The service must be provided at no additional cost by the employer. 
A) Free tax return preparation from a client. 
B) Complementary dry cleaning for employees at a laundry company. 
C) A car wash at an automobile dealership. 
D) Free local phone service for phone company employees.The service must be provided at no additional cost by the employer.

Question 7

When a CEOs 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 8

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

Accepted Answer

A) True 
 B)False

Question 9

Employers always prefer to award incentive stock options rather than nonqualified stock options.

Accepted Answer

A) True 
 B)False

Question 10

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 its marginal tax rate is 35 percent?

Accepted Answer

A) $0 
B) $3,900 
C) $4,198 
D) $6,000 
A) $0 
B) $3,900 
C) $4,198 
D) $6,000

Question 11

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 cash elected is treated at taxable compensation. 
D) All of these are true statements.See discussion in text. 
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 cash elected is treated at taxable compensation. 
D) All of these are true statements.See discussion in text.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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.$1,000 (10 options × 10 shares × $10 exercise price) . 
A) $90. 
B) $500. 
C) $700. 
D) $1,000.$1,000 (10 options × 10 shares × $10 exercise price) .

Question 14

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 15

Stock options will always provide employees with future compensation.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) Provide risk and incentives to employees. 
B) Motivate employees by aligning employee and employer incentives. 
C) Avoid compensation limits for executives. 
D) Provides a low or no cost form of compensation.Employers have to repurchase shares or dilute ownership (incurring opportunity costs) to provide equity-based compensation. 
A) Provide risk and incentives to employees. 
B) Motivate employees by aligning employee and employer incentives. 
C) Avoid compensation limits for executives. 
D) Provides a low or no cost form of compensation.Employers have to repurchase shares or dilute ownership (incurring opportunity costs) to provide equity-based compensation.

Question 17

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 by the shop for $225,and sold to Francis for $250.If the average gross profit percentage of the shop's goods is 20%,what amount of the discount must be included in Francis' income?

Accepted Answer

A) $0 
B) $25 
C) $60 
D) Some other amount.Because the discount was less than the average gross profit percentage of the shop's goods,and above cost,there is no income inclusion. 
A) $0 
B) $25 
C) $60 
D) Some other amount.Because the discount was less than the average gross profit percentage of the shop's goods,and above cost,there is no income inclusion.

Question 18

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 per share) from his employer.At the time he started working the stock price was $11 per share.Now that the share price is $25 per share,he intends to exercise all of the options.Two years later Bad Brad sells the stock for $27 per share,what is Bad Brad's basis in his stock for purposes of calculating the gain or loss?

Accepted Answer

A) $6,000. 
B) $9,000. 
C) $15,000. 
D) $16,200.The basis is the $6,000 (600 shares × $10 strike price) cash paid and the $9,000 (600 shares × $15 bargain element) income recognized on the exercise-which is equal to the market price on the exercise date less the strike price. 
A) $6,000. 
B) $9,000. 
C) $15,000. 
D) $16,200.The basis is the $6,000 (600 shares × $10 strike price) cash paid and the $9,000 (600 shares × $15 bargain element) income recognized on the exercise-which is equal to the market price on the exercise date less the strike price.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

One primary purpose of equity compensation is to motivate employees.

Accepted Answer

A) True 
 B)False

Which of the following is false regarding dependent care expenses?

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

Tasha receives reimbursement from her employer for dependent care expenses for up to $8,000.Tasha applies for and receives reimbursement of $6,000 for her 10 year old son.How much,if any,is includible in her income?

Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.

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

Which of the following benefits cannot be excluded as a no additional cost service fringe benefit?

When a CEOs salary exceeds $1,000,000,the employee _ taxed on the entire amount,and the employer __ allowed a deduction on the entire amount.

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

Employers always prefer to award incentive stock options rather than nonqualified stock options.

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 its marginal tax rate is 35 percent?

Which of the following statements concerning cafeteria plans is true?

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

How is the bargain element for a stock option calculated?

Stock options will always provide employees with future compensation.

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

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

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 Tax Overview

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

Filters

Exam 12: Compensation

Which of the following is false regarding dependent care expenses?

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

Tasha receives reimbursement from her employer for dependent care expenses for up to $8,000.Tasha applies for and receives reimbursement of $6,000 for her 10 year old son.How much,if any,is includible in her income?

Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.

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

Which of the following benefits cannot be excluded as a no additional cost service fringe benefit?

When a CEOs salary exceeds $1,000,000,the employee _____ taxed on the entire amount,and the employer ______ allowed a deduction on the entire amount.

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

Employers always prefer to award incentive stock options rather than nonqualified stock options.

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 its marginal tax rate is 35 percent?

Which of the following statements concerning cafeteria plans is true?

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

How is the bargain element for a stock option calculated?

Stock options will always provide employees with future compensation.

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

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

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 Tax Overview

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

Filters

When a CEOs salary exceeds $1,000,000,the employee _ taxed on the entire amount,and the employer __ allowed a deduction on the entire amount.