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Exam 12: Compensation

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Question 41

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Employers always prefer to award incentive stock options rather than nonqualified stock options.

A) True
B) False

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Question 42

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Employer's expense for stock options is typically recognized earlier for book than tax purposes.

A) True
B) False

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Question 43

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A cafeteria plan provides employees discounted meals at a company sponsored dining room.

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?

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?

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?

Which of the following pairs of items is not needed to calculate the after-tax proceeds for a same-day sale?

Flexible spending accounts allow employees to set aside before-tax dollars for medical and dependent care expenses.

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

Employees may exclude from income items such as occasional theater tickets, t-shirts, or a Thanksgiving turkey.

Which of the following is not an example of a taxable fringe benefit?

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)

The date on which stock options are given to the employee is called the exercise date.

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. $\begin{array} { | l | l | l | l | } \hline \text { Model } & \text { FMV } & \text { Dealer cost } & \text { Employee Price } \\\hline \text { Driver } & \$ 600 & \$ 400 & \$ 450 \\\hline \text { Irons } & \$ 1,200 & \$ 700 & \$ 800 \\\hline \text { Balls } & \$ 80 & \$ 75 & \$ 70 \\\hline \text { Bag } & \$ 250 & \$ 175 & \mathbf { \$ 2 0 0 } \\\hline\end{array}$ If the employer's average gross profit percentage is 30 percent, what amount must Jane include in income?

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

The employee's income for restricted stock is typically measured on the grant date.

An employee's income with respect to restricted stock is the fair market value on the vesting date.

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?

An employer always receives a deduction for total compensation paid to a CEO.

Cornhusker Bank reimburses employees for dues to the local bankers association. The reimbursement is includible in the employee's income.