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Exam 12: Compensation

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Question 31

Multiple Choice

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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 2019, Tanya selected $3,420 ($285 per month) of parking, $1,780 in 401(k) contributions, and $800 of cash. How much must Tanya include in taxable income?

A) $0.
B) $1,040.
C) $3,420.
D) $4,220.

E) C) and D)
F) A) and B)

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Question 32

Multiple Choice

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How is the bargain element for a stock option calculated?

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.

E) A) and B)
F) C) and D)

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Question 33

Multiple Choice

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Which of the following statements regarding restricted stock is false?

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

Lara, a single taxpayer with a 32 percent marginal tax rate, desires health insurance. The health insurance would cost Lara $5,000 to purchase if she pays for it herself (Lara's AGI is too high to receive any tax deduction for the insurance as a medical expense) . Lara's employer has a 21 percent marginal tax rate. Ignoring payroll taxes, what is the maximum amount of before-tax salary Lara would give up to receive health insurance? (Round your answer to the nearest whole number.)

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

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

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?

Annika's employer provides its employees with parking benefits. The fair market value of the annual parking benefit is $4,800 ($400 per month). What is the amount Annika must include into income with respect to her parking benefit in 2019?

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?

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

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?

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

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?

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

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

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

Rick recently received 500 shares of restricted stock from his employer, Crazy Corporation, when the share price was $5 per share. Rick's restricted shares vested three years later, when the market price was $12. Rick held the shares for a little more than a year and sold them when the market price was $15. What is the amount of Rick's income on the vesting date? Assuming a marginal tax rate of 32 percent, what is Rick's tax on the restricted stock?

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

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