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Exam 12: Compensation

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Question 21

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

A) True
B) False

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Question 22

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Annika's employer provides each employee with up to $200 of monthly vouchers for public transportation. What is the amount that Annika must include into income with respect to her benefit in 2018?

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$2,400 benefit less the $3,...

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Question 23

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

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 ten 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?

Which of the following is True regarding stock options?

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

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

A section 83(b) election freezes the value of restricted stock for compensation purposes on the vesting date.

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?

Hotel employees can receive free nights lodging on a space available basis without incurring compensation.

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 gain on the sale of the stock? Assuming a marginal tax rate of 37 percent, what is Rick's tax on the sale of the stock?

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $12 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 exercises 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 at the time of the sale?

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

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' income?

An employer always receives a deduction for total compensation paid to a CEO.

Which of the following statements regarding employer provided educational benefits is True?

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehicles per year at a discount. Levingston's average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3. What amount must Kevin include in income?

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?

Group-term life insurance is a fringe benefit that can be partially taxable and partially tax free.

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 after vesting and sold them when the market price was $15. Assuming that Rick made an election under section 83(b) when the stock was granted and that his marginal tax rate is 24 percent, what is the amount of Rick's income inclusion and tax liability upon the sale of the stock?