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Exam 12: Compensation

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Question 51

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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 $14 per share. Three years later, when the share price was $23 per share, she exercised all of her options. How much cash will Suzanne need on the exercise date?

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Question 52

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

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B) False

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Question 53

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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 30 percent, what is Rick's tax on the restricted stock?

Stevie recently received 1,000 shares of restricted stock from her employer, Nicks Corporation, when the share price was $8 per share. Stevie's restricted shares vested three years later when the market price was $11. Stevie held the shares for a little more than a year and sold them when the market price was $16. Assuming Stevie made a section 83(b) election, what is the amount of Stevie's ordinary income with respect to the restricted stock?

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

Lara, a single taxpayer with a 30 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 40 percent marginal tax rate. Ignoring payroll taxes, what is the maximum amount of before-tax salary Lara would give up to receive health insurance?

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

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?

Up to $5,250 of educational benefits 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. What is the amount of Maren's bargain element?

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?

Fringe benefits are generally a form of non-cash compensation.

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

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

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

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

Annika's employer provides only its executives with parking benefits. The fair market value of the annual parking benefit is $4,800. What is the amount Annika must include into income with respect to her parking benefit in 2014?

Which of the following isn't done by Form W-2?

An apartment manager can exclude the fair market value of free rent from his or her income.

Which of the following is true regarding stock options?