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CHAPTER 5 GROSS INCOME: EXCLUSIONS

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Question;1.;Heather is a full?time employee of the Drake Company and;participates in the company?s flexible spending plan that is available to all;employees. Which of the following is correct?;a. Heather reduced her;salary by $1,200, actually spent $1,500, and received only $1,200 as;reimbursement for her medical expenses. Heather?s gross income will be reduced;by $1,500.;b. Heather reduced her;salary by $1,200, and received only $900 as reimbursement for her actual;medical expenses. She is not refunded the $300 remaining balance, but her gross;income is reduced by $1,200.;c. Heather reduced her;salary by $1,200, and received only $800 as reimbursement for her medical;expenses. She is not refunded the $400. Her gross income is reduced by $800.;d. Heather reduced her;salary by $1,200, and received only $900 as reimbursement for her medical;expenses. She forfeits the $300. Her gross income is reduced by $300.;e. None of the above.;2.;Employees of the Valley Country Club are allowed to use the;golf course without charge before and after working hours on Mondays, when the;number of players on the course is at its lowest. Tom, an employee of the;country club played 40 rounds of golf during the year at no charge when the;non-employee charge was $20 per round.;a. Tom must include $800;in gross income.;b. Tom is not required;to include anything in gross income because it is a de minimis fringe benefit.;c. Tom is not required;to include the $800 in gross income because the use of the course was a gift.;d. Tom is not required;to include anything in gross income because this is a ?no?additional?cost;service? fringe benefit.;e. None of the above.;3.;The Royal Motor Company manufactures automobiles.;Non-management employees of the company can buy a new automobile for Royal?s;cost plus 2%. The automobiles are sold to dealers at cost plus 20%. Generally;management employees of Local Dealer, Inc., are allowed to buy a new automobile;from the company at the dealer?s cost. Which of the following statements is;correct?;a. The non-management;employees who buy automobiles at a discount are not required to recognize;income from the purchase.;b. None of the employees;who take advantage of the fringe benefits described above are required to recognize;income.;c. Employees of Royal;are required to recognize as gross income 18% (20% ? 2%) of the cost of the;automobile purchased.;d. All of the above.;e. None of the above.;4.;Peggy is an executive for the Tan Furniture Manufacturing;Company. Peggy purchased furniture from the company for $9,500, the price Tan;ordinarily would charge a wholesaler for the same items. The retail price of;the furniture was $12,500, and Tan?s cost was $9,000. The company also paid for;Peggy?s parking space in a garage near the office. The parking fee was $600 for;the year. All employees are allowed to buy furniture at a discounted price;comparable to that charged to Peggy. However, the company does not pay other;employees? parking fees. Peggy?s gross income from the above is;a. $0.;b. $600.;c. $3,500.;d. $4,100.;e. None of the above.;5.;The employees of Mauve Accounting Services are permitted to;use the copy machine for personal purposes, provided the privilege is not;abused. Ed is the president of a civic organization and uses the copier to make;several copies of the organization?s agenda for its meetings. The copies made;during the year would have cost $150 at a local office supply.;a. Ed must include $150;in his gross income.;b. Ed may exclude the;cost of the copies as a no-additional cost fringe benefit.;c. Ed may exclude the;cost of the copies only if the organization is a client of Mauve.;d. Ed may exclude the;cost of the copies as a de minimisfringe;benefit.;e. None of the above.;6.;The Perfection Tax Service gives employees $12.50 as ?supper;money? when they are required to work overtime, approximately 25 days each;year. The supper money received;a. Must be included in;the employee?s gross income.;b. Must be included in;the employee?s gross income if the employee does not spend it for supper.;c. May be excluded from;the employee?s gross income as a ?no?additional cost? fringe benefit.;d. May be excluded from;the employee?s gross income as a de;minimisfringe benefit.;e. None of the above.;7.;The;de minimisfringe benefit;a. Exclusion applies;only to property received by the employee.;b. Can be provided on a;discriminatory basis.;c. Exclusion is limited;to $250 per year.;d. Exclusion applies to;employee discounts.;e. None of the above.;8.;Evaluate the following statements;I.;De minimisfringe benefits are;those that are so immaterial that accounting for them is impractical.;II.;De minimisfringe benefits are;subject to strict anti-discrimination requirements.;III.;Generally, a fringe benefit of less than $50 is considered de minimisand can be excluded from;gross income.;a. Only I is true.;b. Only III is true.;c. Only I and III are;true.;d. I, II, and III are;true.;e. None of the above.;9.;Kristen?s employer owns its building and provides parking;space for its employees. The value of the free parking is $150 per month.;Karen?s employer does not have parking facilities, but reimburses its employee;for the cost of parking in a nearby garage, up to $150 per month.;a. Kristen and Karen;must recognize gross income from the parking services.;b. Kristen can exclude;the employer provided parking from gross income, but Karen must include her;reimbursement in gross income.;c. Kristen must include;the value of the employer provided parking from her gross income, but Karen can;exclude her reimbursement from gross income.;d. Neither Kristen nor;Karen is required to include the cost of parking in gross income.;e. None of the above.

 

Paper#38182 | Written in 18-Jul-2015

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