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Exam 12: Compensation

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Question 1

True/False

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Health insurance is an example of a nontaxable fringe benefit.

A) True
B) False

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Question 2

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

A) True
B) False

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Question 3

Multiple Choice

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

Employees complete a Form W-2 to specify their income tax withholding.

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.

For 2014, up to $300 of qualified transportation fringe benefits can be excluded from 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 $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?

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?

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

Which of the following statements regarding compensation is false?

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

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

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

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?

Which of the following does not qualify as a "for the convenience of the employer" nontaxable fringe benefit?

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?

How is the bargain element for a stock option calculated?

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

Which of the following is false regarding dependent care expenses?

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?