Details of this Paper

Chapter 12 Compensation

Description

solution


Question

Question;Chapter 12;Compensation;True / False Questions;1. Current;compensation is usually comprised of salary, wages, and bonuses.;True False;2. Employees;complete a Form W-2 to specify their income tax withholding.;True False;3. Employers;computing taxable income receive a deduction for salary and wages paid to;employees.;True False;4. Employers;computing taxable income under the accrual method 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 2? months after the employer's year-end.;True False;5. One;purpose of Form W-4 is to determine an employee's withholding.;True False;6. On Form;W-4, an employee can only claim one allowance for each personal or dependency;exemption that will be claimed on the employee's income tax return.;True False;7. An;employee can indicate whether they want an additional amount withheld for;payroll taxes on the Form W-4.;True False;8. Employers;receive a deduction for compensation paid to and employment taxes paid on;behalf of employees.;True False;9. An;employer always receives a deduction for total compensation paid to a CEO.;True False;10. One;primary purpose of equity compensation is to motivate employees.;True False;11. The date;on which stock options are given to the employee is called the exercise date.;True False;12. Stock;options will always provide employees with future compensation.;True False;13. The date;on which stock options are no longer subject to forfeiture is called the;vesting date.;True False;14. When stock;options are exercised they are converted into actual employer stock.;True False;15. Employees;will always prefer to receive incentive stock options over nonqualified stock;options.;True False;16. Employers;always prefer to award incentive stock options rather than nonqualified stock;options.;True False;17. Employer's;expense for stock options is typically recognized earlier for book than tax;purposes.;True False;18. The use of;restricted stock is rising relative to the use of stock options.;True False;19. The;employee's income for restricted stock is typically measured on the grant date.;True False;20. An;employee's income with respect to restricted stock is the fair market value on;the vesting date.;True False;21. A section;83(b) election freezes the value of restricted stock for compensation purposes;on the vesting date.;True False;22. Fringe;benefits are generally a form of non-cash compensation.;True False;23. Taxable;fringe benefits include automobile allowances, gym memberships, and personal;use tickets to the theater or sporting events.;True False;24. Group-term;life insurance is a fringe benefit that can be partially taxable and partially;tax free.;True False;25. Employers;sometimes pay a gross-up to employees to cover taxes associated with taxable;fringe benefits they provide.;True False;26. Employers;cannot discriminate between highly and non-highly compensated employees when;providing taxable fringe benefits.;True False;27. Health;insurance is an example of a nontaxable fringe benefit.;True False;28. An;apartment manager can exclude the fair market value of free rent from his or;her income.;True False;29. Up to;$5,250 of educational benefits can be excluded from an employee's compensation.;True False;30. Up to;$10,000 of dependent care expenses can be excluded from an employee's;compensation.;True False;31. Hotel;employees can receive free nights lodging on a space available basis without;incurring compensation.;True False;32. Qualified;employee discounts allow employees to purchase employer goods at a discount.;True False;33. Cornhusker;Bank reimburses employees for dues to the local bankers association. The;reimbursement is includible in the employee's income.;True False;34. Employees;may exclude from income items such as occasional theater tickets, t-shirts, or;a Thanksgiving turkey.;True False;35. For 2014;up to $300 of qualified transportation fringe benefits can be excluded from;income.;True False;36. A;cafeteria plan provides employees discounted meals at a company sponsored;dining room.;True False;37. Flexible;spending accounts allow employees to set aside before-tax dollars for medical;and dependent care expenses.;True False;Multiple Choice Questions;38. Which of;the following forms is filled out by an employee, who is a citizen, at the;beginning of an employment relationship?;A. Form I-9.;B. Form W-2.;C. Form W-4.;D. Form;1099.;39. Which of;the following items is not included on an employee's Form W-2?;A. Taxable;wages, tips, and compensation;B. Social;Security withholding;C. Value of;stock options granted during the year;D. Federal;and state income tax withholding;40. Which of;the following statements regarding compensation is false?;A. Wages are;usually paid by the hour.;B. Salary is;usually a form of fixed compensation.;C. Bonuses;are a form of compensation obtained if certain criteria are met.;D. Bonuses;paid within 2? months of year end are included in employee's compensation in;the year they were earned.;41. Which of;the following statements regarding income tax withholding is incorrect?;A. The;withholding tables are designed so that employee withholding approximates the;tax liability.;B. Large;itemized deductions require the need for additional withholding.;C. The;withholding tables vary based on filing status.;D. Extra;allowances can be claimed and reduce withholding.;42. Which of;the following isn't done by Form W-2?;A. Summarizes;the employee's taxable salary and wages.;B. Provides;annual Federal and state withholding information.;C. Indicates;whether an employee had more than one employer during the year.;D. Generated;by an employer annually.;43. Which of;the items is not correct regarding withholding?;A. Employees;that also have self employment income can have additional amounts withheld to;avoid estimated tax payments.;B. Employees;cannot claim an allowance for a child unless they are entitled to claim the;child as a dependent.;C. Employees;can claim exempt and avoid withholding.;D. Married;employees can choose to be withheld at the higher single rates.;44. Which of;the following regarding the Form W-4 is incorrect?;A. Determines;an employee's income tax withholding.;B. Employees;can claim more allowances than personal exemptions that will be claimed.;C. Employees;can specify additional amounts to be withheld each month.;D. The form;can only be adjusted at the beginning of year or start of employment.;45. Which of;the following statements is true regarding the $1,000,000 limit on covered;employees?;A. The;limitation applies to all employees.;B. The;limitation applies to all officers.;C. The;limitation applies only to the CEO and three other highest compensated;officers.;D. The;limitation applies only to the CEO and three other highest compensated;officers, not including the CFO.;46. When a;CEO's salary exceeds $1,000,000, the employee _____ taxed on the entire amount;and the employer ______ allowed a deduction on the entire amount.;A. is, is;B. is, is;not;C. is not;is;D. is not;is not;47. Which of;the following is not a purpose of equity-based compensation?;A. Provide;risk and incentives to employees.;B. Motivate;employees by aligning employee and employer incentives.;C. Avoid;compensation limits for executives.;D. Provides;a low or no cost form of compensation.;48. Which of;the following is true regarding stock options?;A. A loss is;realized when stock options lapse.;B. There is;typically no tax effect on the grant date.;C. Income;recognized on the exercise date is greater for incentive stock options than;nonqualified options.;D. The;bargain element on a nonqualified option is taxed to employees at capital gain;rates.;49. Which of;the following refers to the date stock options are awarded to an employee?;A. Grant;date.;B. Exercise;date.;C. Lapse;date.;D. Vesting;date.;50. Aharon;exercises 10 stock options awarded several years ago. The following information;pertains to the options: (1) each option gives the employee the right to buy 10;shares, (2) the market price on the grant date was $7, (3) the strike price is;$10, and (4) the market price on the exercise date was $15. How much will it;cost Aharon to purchase the options on the exercise date?;A. $90.;B. $500.;C. $700.;D. $1,000.;51. 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?;A. $0.;B. $700.;C. $900.;D. $1,500.;E. None of;these.;52. 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 and how much tax will she;pay assuming her marginal tax rate is 35 percent?;A. $0 gain;and $0 tax.;B. $500 gain;and $75 tax.;C. $500 gain;and $175 tax.;D. $1,200;gain and $180 tax.;53. 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.;54. Which of;the following pairs of items is not needed to calculate the after-tax proceeds;for a same-day sale?;A. Strike;price and market price on exercise date.;B. Strike;price and market price on grant date.;C. Market;price on sale date and market price on exercise date.;D. Market price;on sale date and marginal tax rate.;55. Bad Brad;received 20 NQOs (each option gives him the right to purchase 30 shares of;stock for $10 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;intends to exercise 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?;A. $6,000.;B. $9,000.;C. $15,000.;D. $16,200.;56. Which of;the following statements regarding restricted stock is false?;A. Like;stock options, restricted stock has to vest before it can be sold.;B. Like;nonqualified stock options, the employee's income inclusion for restricted;stock is the bargain element.;C. Even if;the value of restricted stock decreases from the price on the grant date, it;retains some value to the employee.;D. There is;no effective tax planning elections for restricted stock.;57. 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 $20. What is the amount of Tom's income or loss on the vesting date?;A. $0.;B. $10,000.;C. $20,000.;D. $28,000.;58. 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?;A. $0;B. $2,000;loss;C. $4,000;gain;D. $4,000;loss;59. Which of;the following is false regarding a section 83(b) election?;A. The;election freezes the value of the employee's compensation at the grant date.;B. The;election is an important tax planning tool if the stock is expected to increase;in value.;C. The;election must be made within 30 days of the grant date.;D. If an;employee leaves before the vesting date, any loss is limited to $3,000.;60. 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. What;is the amount of Stevie's ordinary income with respect to the restricted stock?;A. $0.;B. $5,000.;C. $8,000.;D. $11,000.;61. 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?;A. $0.;B. $5,000.;C. $8,000.;D. $11,000.;62. Which of;the following is not an example of a taxable fringe benefit?;A. Personal;use of corporate jet.;B. $1,000,000;group term life insurance policy.;C. $225 of;employer provided parking.;D. Automobile;allowance.;63. Bonnie's;employer provides her with an annual dinner club membership costing $5,000. Her;marginal tax rate is 25 percent. Her employer has a marginal tax rate of 35;percent. What is Bonnie's after-tax benefit?;A. $0.;B. $1,250.;C. $3,750.;D. $5,000.;64. 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.;A. $0.;B. $15.00.;C. $22.00.;D. $58.33.;65. Which of;the following is not an example of a nontaxable fringe benefit?;A. Monthly;employer provided transit benefit of $100.;B. Group-term;life insurance policy providing $100,000 of coverage.;C. Employer;provided parking of $100 per month.;D. Qualified;employee discounts.;66. Which of;the following does not qualify as a "for the convenience of the;employer" nontaxable fringe benefit?;A. The fair;market value of the rent of an apartment manager living on the premises.;B. An overtime;meal provided to an employee while working late.;C. A meal;provided by a hospital to residents during their shift.;D. A company;picnic.;67. Rachel;receives employer provided health insurance. The employer's cost of the health;insurance is $6,000 annually. What is her employer's after-tax cost of;providing the health insurance, assuming that the employer's marginal tax rate;is 35 percent?;A. $0;B. $3,900;C. $4,198;D. $6,000;68. Which of;the following statements regarding employer provided educational benefits is;true?;A. All;undergraduate tuition expenses can be excluded.;B. Only;educational benefits from public universities can be excluded.;C. Up to;$5,250 in tuition benefits can be excluded.;D. All;graduate tuition expenses are included.;69. Which of;the following benefits cannot be excluded as a no additional cost service;fringe benefit?;A. Free tax;return preparation from a client.;B. Complementary;dry cleaning for employees at a laundry company.;C. A car;wash at an automobile dealership.;D. Free;local phone service for phone company employees.;70. Which of;the following is not a requirement of a "qualified employee;discount"?;A. The;discount relates to goods or services of the employer.;B. The;discount on services doesn't exceed 20 percent of the price offered to;customers.;C. The;discount can be elected up to five times annually.;D. The;employee discount on goods is not greater than employer's average gross profit.;71. 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?;A. $0;B. $25;C. $40;D. Some;other amount.;72. Kevin is;the financial manager of Levingston BMW. The shop allows employees to purchase;up to two vehicles 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?;A. $0;B. $2,200;C. $3,000;D. $25,000;73. Which of;the following is false regarding dependent care expenses?;A. Up to;$5,000 of reimbursed expenses can qualify.;B. Employers;may discriminate among employees.;C. Dependent;children under 13 qualify.;D. Spouses;who are physically or mentally unable to care for themselves qualify.;74. 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?;A. $0.;B. $1,000.;C. $3,000.;D. $6,000.;75. Which of;the following statements concerning cafeteria plans is true?;A. Allows;employees to choose from a menu of fringe benefits or to choose cash.;B. Most of;the menu choices are nontaxable fringe benefits.;C. Any cash;elected is treated at taxable compensation.;D. All of;these are true statements.;76. 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 2014, Tanya selected;$3,200 of parking, $2,200 in 401(k) contributions, and $800 of cash. How much;must Tanya include in taxable income?;A. $0.;B. $1,000.;C. $1,120.;D. $4,000.;77. Which of;the following is a fringe benefit that employers can discriminate among;employees?;A. No;additional cost service.;B. Qualified;employee discount.;C. Qualified;transportation fringe.;D. Employee;educational assistance.;78. 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?;A. $1,500.;B. $5,000.;C. $7,143.;D. $8,333.;Essay Questions;79. Leesburg;paid its employee $200,000 of compensation for the year. What is the after-tax;cost of paying the salary assuming a 30 percent marginal tax rate (ignore;payroll taxes)?;80. Big Bucks;paid its CEO $1,500,000 of compensation for the year. What is the after-tax;cost of paying the salary assuming a 30 percent marginal tax rate?;81. 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?;82. 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;25 percent?;83. 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 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 25;percent?;84. 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?;85. 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 two additional;years 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?;86. 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 one;additional year 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?;87. Raja;received 20 NQOs (each option gives him the right to purchase 15 shares of;stock for $10 per share) from his employer at the time he started working when;the stock price was $11 per share. Now that the share price is $20 per share;he intends to exercise all of the options using a same-day sale. What are;Raja's after-tax proceeds from the sale if his marginal tax rate is 30 percent?;88. Kaijsa;received 20 NQOs (each option gives her the right to purchase 30 shares of;stock for $8 per share) from her employer at the time she started working when;the stock price was $9 per share. Now that the share price is $18 per share;she intends to exercise all of her options. If Kaijsa holds the shares for two;years and sells them when the market price is $25, what is the amount of the;deduction and tax savings her employer will receive (assume the employer's;marginal tax rate is 30 percent?;89. 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?;90. 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 sale of the stock? Assuming a marginal;tax rate of 30 percent, what is Rick's tax on the sale of the stock?;91. 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. What is the amount of Rick's compensation income if Rick made an;election under section 83(b) when the stock was granted? Assuming a marginal;tax rate of 30 percent, what is the amount of Rick's income inclusion and tax liability;at the time of the income inclusion?;92. 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, what is the amount of Rick's income inclusion and tax liability;upon the sale of the stock?;93. Kimberly's;employer provides her with a personal travel allowance of $10,000 annually. Her;marginal tax rate is 30 percent. Her employer has a marginal tax rate of 35;percent. What is Kimberly's after-tax benefit, ignoring payroll taxes?;94. 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? (ADD TABLE);95. 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?;96. 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?;97. 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?;98. 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?;99. 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 2014?;100. 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 2014, 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?;101. 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). Lina's employer has a 30 percent marginal tax rate. What;is the maximum amount of before-tax salary Lina would give up to receive health;insurance?;102. 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 30 percent marginal tax rate.;What would be the after-tax cost to Lina's employer to provide her with health;insurance?

 

Paper#38061 | Written in 18-Jul-2015

Price : $37
SiteLock