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Exam 12: Compensation

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Question 21

True/False

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Employees may exclude from income items such as occasional theater tickets, T-shirts, or a Thanksgiving turkey.

A) True
B) False

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Question 22

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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 two and a half months after the employer's year-end.

A) True
B) False

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Question 23

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Grace'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 Grace's employer $700 to provide this amount of insurance to Grace each year. Assuming that Grace is 43 years old, use the table to determine the monthly premium that Grace must include in income as a result of receiving the group-term life benefit. Uniform Premiums for $1,000 of Group-Term Life Insurance Protection:

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?

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

Jane is an employee of Rohrs Golf Emporium. The shop allows employees to purchase equipment at significant discount. This year, Jane purchased several new items to improve her game. If the employer's average gross profit percentage is 30 percent, what amount must Jane include in income?

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

For 2020, up to $300 of transportation fringe benefits can be excluded from income.

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 2020, Tanya selected $3,480 ($290 per month) of parking, $1,720 in 401(k) contributions, and $800 of cash. How much must Tanya include in taxable income?

Brandy graduated from Vanderbilt with her bachelor's degree recently. She works for Walton & Company CPAs. The firm pays her tuition ($8,000 per year)for her so that she can receive her MBA. How much of the $8,000 tuition benefit does Brandy need to include in her income?

On Form W-4, an employee can change their withholding through claiming dependents, other adjustments for non-wage income or deductions, and choosing extra withholding.

Maren received 11 NQOs (each option gives her the right to purchase 14 shares of stock for $10 per share) at the time she started working when the stock price was $7 per share. When the share price was $16 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $21 per share. What is the amount of Maren's bargain element?

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

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 10 additional months 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?

Corinne's employer offers a cafeteria plan that allows employees to choose among a number of benefits. Each employee is allowed $12,000 in benefits. For the current year, Corinne selected $4,500 of health insurance, $5,500 of dependent care, $1,000 in 401(k)contributions, and $1,000 of cash. How much must Corinne include in taxable income?

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

Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,480 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 $6,800. 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?

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

Which of the following is not a requirement of a "qualified employee discount"?

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. EXHIBIT 12-10 Uniform Premiums for $1,000 of Group-Term Life Insurance Protection: