Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,000 to purchase if she pays for it herself (Lina's AGI is too high to receive any tax deduction for the insurance as a medical expense). Because of group discounts, her employer can purchase the insurance for $6,000. Lina's employer has a 21 percent marginal tax rate. What would be the after-tax cost to Lina's employer to provide her with health insurance?

Accepted Answer

$4,740
$6,

Question 3

Employees complete a Form W-2 to specify their income tax withholding.

Accepted Answer

A) True 
 B)False

Question 4

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 the employer's marginal tax rate is 21 percent and is profitable?

Accepted Answer

A)  $0. 
B)  $1,260. 
C)  $4,740. 
D)  $6,000. 
A)  $0. 
B)  $1,260. 
C)  $4,740. 
D)  $6,000.

Question 5

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 6

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 7

Cornhusker Bank reimburses employees for dues to the local banker's association. The reimbursement is includible in the employee's income.

Accepted Answer

A) True 
 B)False

Question 8

One purpose of Form W-4 is to determine an employee's withholding.

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

Which of the following is false regarding a section 83(b) election?

Accepted Answer

A)  The election freezes the value of the employee's compensation as of the grant date. 
B)  The election is an important tax planning tool if the stock is expected to increase in value. 
C)  The election must be made within 30 days of the grant date. 
D)  If an employee leaves before the vesting date, any loss is limited to $3,000. 
A)  The election freezes the value of the employee's compensation as of the grant date. 
B)  The election is an important tax planning tool if the stock is expected to increase in value. 
C)  The election must be made within 30 days of the grant date. 
D)  If an employee leaves before the vesting date, any loss is limited to $3,000.

Question 11

Raja received 20 NQOs (each option gives him the right to purchase 15 shares of stock for $10 per share) from his employer at the time he started working when the stock price was $11 per share. Now that the share price is $20 per share, he intends to exercise all of the options using a same-day sale. What are Raja's after-tax proceeds from the sale if his marginal tax rate is 32 percent?

Accepted Answer

$2,040.
The after-tax proceeds is the sa

Question 12

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. 
A)  Grant date. 
B)  Exercise date. 
C)  Lapse date. 
D)  Vesting date.

Question 13

Which of the following is true regarding stock options?

Accepted Answer

A)  A loss is realized when stock options lapse. 
B)  There is typically no tax effect on the grant date. 
C)  Income recognized on the exercise date is greater for incentive stock options than nonqualified options. 
D)  The bargain element on a nonqualified option is taxed to employees at capital gain rates. 
A)  A loss is realized when stock options lapse. 
B)  There is typically no tax effect on the grant date. 
C)  Income recognized on the exercise date is greater for incentive stock options than nonqualified options. 
D)  The bargain element on a nonqualified option is taxed to employees at capital gain rates.

Question 14

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. How much income will Hazel recognize on the exercise date and how much tax will she pay assuming her marginal tax rate is 24 percent?

Accepted Answer

$2,600 and $624.
The bargain e

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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. How much cash will Hazel need on the exercise date to exercise the stock option?

Accepted Answer

$1,400.
20 options ×

Question 18

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 19

Health insurance is an example of a nontaxable fringe benefit.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

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

Employees complete a Form W-2 to specify their income tax withholding.

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 the employer's marginal tax rate is 21 percent and is profitable?

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

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

Cornhusker Bank reimburses employees for dues to the local banker's association. The reimbursement is includible in the employee's income.

One purpose of Form W-4 is to determine an employee's withholding.

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

Which of the following is false regarding a section 83(b) election?

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

Which of the following is true regarding stock options?

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

Health insurance is an example of a nontaxable fringe benefit.

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

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

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

Filters

Exam 12: Compensation

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

Employees complete a Form W-2 to specify their income tax withholding.

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 the employer's marginal tax rate is 21 percent and is profitable?

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

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

Cornhusker Bank reimburses employees for dues to the local banker's association. The reimbursement is includible in the employee's income.

One purpose of Form W-4 is to determine an employee's withholding.

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

Which of the following is false regarding a section 83(b) election?

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

Which of the following is true regarding stock options?

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

Health insurance is an example of a nontaxable fringe benefit.

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

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

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

Filters