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Exam 12: Compensation

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Question 61

Multiple Choice

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

A) $0
B) $2,500
C) $2,950
D) $22,000

E) A) and C)
F) A) and B)

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Question 62

True/False

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

A) True
B) False

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Question 63

Essay

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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?

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 21 percent marginal tax rate. What is the maximum amount of before-tax salary Lina would give up to receive health insurance? (Round your answer to the nearest whole number.)

Which of the following is false regarding a section 83(b) election?

Without an election, the income from an employee's restricted stock is measured on the grant date.

Brandy graduated from Vanderbilt with her bachelor's degree recently. She works for Walton & Company CPAs. The firm pays her tuition ($8,150 per year)for her so that she can receive her MBA. How much of the $8,150 tuition benefit does Brandy need to include in her income?

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 35 percent, what is the amount of Rick's ordinary income amount and tax liability at the time of the income inclusion?

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 37 percent?

Which of the following benefits cannot be excluded as a no-additional-cost service fringe benefit?

Rick recently received 585 shares of restricted stock from his employer, Crazy Corporation, when the share price was $22 per share. Rick's restricted shares vested three years later, when the market price was $29. Rick held the shares for a little more than a year after vesting and sold them when the market price was $32. 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 35 percent, what is the amount of Rick's ordinary income amount and tax liability at the time of the income inclusion?

Lara, a single taxpayer with a 32 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 21 percent marginal tax rate. Ignoring payroll taxes, what is the maximum amount of before-tax salary Lara would give up to receive health insurance? (Round your answer to the nearest whole number.)

Which of the following statements regarding restricted stock is false?

Fringe benefits are generally a form of noncash compensation.

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

Grace's employer is now offering group-term life insurance. The company will provide each employee with $155,000 of group-term life insurance. It costs Grace's employer $785 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. Uniform Premiums for $1,000 of Group-Term Life Insurance Protection:

Which of the following statements concerning cafeteria plans is true?

Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $9,800 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 21 percent marginal tax rate. What is the maximum amount of before-tax salary Lina would give up to receive health insurance? (Round your answer to the nearest whole number.)

Corinne's employer offers a cafeteria plan that allows employees to choose among a number of benefits. Each employee is allowed $12,910 in benefits. For the current year, Corinne selected $4,565 of health insurance, $5,565 of dependent care, $1,130 in 401(k)contributions, and $1,650 of cash. How much must Corinne include in taxable income?

Stock options will always provide employees with future compensation.