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Exam 12: Compensation

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Question 51

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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.

E) All of the above
F) B) and C)

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Question 52

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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?

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$4,800.
20 options ×...

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Question 53

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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?

If certain conditions are met,an apartment manager can exclude the fair market value of free rent from his or her income.

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 2017,Tanya selected $3,300 ($275 per month) of parking,$2,200 in 401(k) contributions,and $800 of cash.How much must Tanya include in taxable income?

Which of the following statements concerning cafeteria plans is true?

Which of the following is a fringe benefit that employers can discriminate among employees?

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. $\begin{array} { c c c c } \text { Model } & \text { FMV } & \text { Dealer cost } & \text { Employee Price } \\530 & \$ 63,000 & \$ 50,000 & \$ 54,000 \\\text { M3 } & \$ 10,000 & \$ 60,000 & \$ 57,000\end{array}$ What amount must Kevin include in income?

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

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

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?

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.

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

The use of restricted stock is increasing relative to the use of stock options.

Which of the following is not a requirement of a "qualified employee discount"?

Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.

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?

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

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?

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 and that his marginal tax rate is 30 percent,what is the amount of Rick's income inclusion and tax liability upon the sale of the stock?