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Exam 12: Compensation

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Question 21

Multiple Choice

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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 for $225, was sold to Francis for $250, and the employer's average gross profit percentage is 30 percent. What amount of the discount must be included in Francis's income?

A) $0.
B) $25.
C) $40.
D) Some other amount.

E) A) and D)
F) None of the above

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Question 22

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

A) True
B) False

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Question 23

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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. If Hazel holds the shares for two years after exercise and sells them when the market price is $25, how much gain will Hazel recognize on the sale and how much tax will she pay, assuming her marginal tax rate is 37 percent?

Kimberly's employer provides her with a personal travel allowance of $10,000 annually. Her marginal tax rate is 32 percent. Her employer has a marginal tax rate of 21 percent. What is Kimberly's after-tax benefit, ignoring payroll taxes?

Which of the following statements concerning cafeteria plans is true?

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

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. How much gain will Maren recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 37 percent?

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?

Which of the following statements is true regarding the $1,000,000 limit on covered employees for publicly traded companies?

One primary purpose of equity compensation is to motivate employees.

Which of the following regarding the Form W-4 is incorrect?

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

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

Current compensation is usually comprised of salary, wages, and bonuses.

If certain conditions are met, an apartment manager can exclude the fair market value of free rent from his or her income.

Which of the following is a fringe benefit that allows employers to discriminate among employees when providing it?

Which of the following is false regarding dependent-care expenses?

For compensation plans adopted by a company in 2019, when a publicly traded CEO's salary exceeds $1,000,000, the employee ________ taxed on the entire amount, and the employer ________ allowed a deduction on the entire amount.

Tom recently received 2,000 shares of restricted stock from his employer, Independence Corporation, when the share price was $10 per share. Tom's restricted shares vested three years later when the market price was $14. Tom held the shares for a little more than a year and sold them when the market price was $12. What is the amount of Tom's income or loss on the sale?

Employers cannot discriminate between highly and non-highly compensated employees when providing taxable fringe benefits.