ACC311 CH12: compensation

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $12 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 exercises 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 at the time of the sale?

$15,000

Which of the following statements concerning cafeteria plans is true?

All of the statements are true.

Which of the following statements regarding compensation is false?

Bonuses paid within two and a half months of year-end are included in employee's compensation in the year they were earned.

Which of the following forms is used to determine income tax withholding for an employment relationship?

Form W-4

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

Free tax return preparation from a client

Which of the following refers to the date stock options are awarded to an employee?

Grant date

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

Group-term life insurance policy providing $100,000 of coverage

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

If an employee leaves before the vesting date, any loss is limited to $3,000.

Which of the following isn't reported on the Form W-2?

Indication as to whether an employee had more than one employer during the year

How is the bargain element for a stock option calculated?

The difference between the market price on the exercise date and the strike price

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

The discount can be elected up to five times annually.

Which of the following is false regarding an 83(i) election?

The election allows employees of any corporation to defer income tax liability.

Which of the following regarding the Form W-4 is incorrect?

The form can only be adjusted at the beginning of the year or start of employment.

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

The limitation applies only to the CEO, CFO, three other highest compensated officers, and all covered employees from previous years.

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's income?

$0

Which of the following is true regarding stock options?

There is typically no tax effect on the grant date.

Which of the following statements regarding employer-provided educational benefits is true?

Up to $5,250 in tuition benefits can be excluded.

Which of the following items is not included on an employee's Form W-2?

Value of stock options granted during the year

For compensation plans adopted by a publicly traded company in the current year, when a CEO's salary exceeds $1,000,000, the employee ______ taxed on the entire amount, and the employer ______ qllowed a deduction on the entire amount.

is; is not

Aharon exercises 10 stock options awarded several years ago. The following information pertains to the options: each option gives the employee the right to buy 10 shares, the market price on the grant date was $7, the strike price is $10, and the market price on the exercise date was $15. How much will it cost Aharon to purchase the options on the exercise date?

$1,000

Tasha receives reimbursement from her employer for dependent-care expenses for up to $8,000. Tasha applies for and receives reimbursement of $6,000 for her 10-year-old son. How much, if any, is includible in her income?

$1,000

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 2024, Tanya selected $4,020 ($335 per month) of parking, $1,360 in 401(k) contributions, and $800 in cash. How much must Tanya include in taxable income?

$1,040

Stevie recently received 1,000 shares of restricted stock from her employer, Nicks Corporation, when the share price was $8 per share. Stevie's restricted shares vested three years later when the market price was $11. Stevie held the shares for a little more than three years and sold them when the market price was $16. What is the amount of Stevie's ordinary income with respect to the restricted stock?

$11,000

Grace'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 Grace's employer $700 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: Five-Year Age BracketCost per $1,000 of Protection for One MonthUnder 25$ 0.0525 to 290.0630 to 340.0835 to 390.0940 to 440.1045 to 490.1550 to 540.2355 to 590.4360 to 640.6665 to 691.2770 and above2.06

$15.00

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehicles per year at a discount. Levingston's average gross profit percentage is 15 percent. This year Kevin purchased a 530 model and a new M3. ModelFMVDealer costEmployee Price530$ 63,000$ 50,000$ 54,000M3$ 70,000$ 60,000$ 57,000 What amount must Kevin include in income?

$2,500

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

$275 of monthly employer-provided parking

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 three years and sold them when the market price was $20. What is the amount of Tom's income or loss on the vesting date?

$28,000

Bonnie's employer provides her with an annual dinner club membership costing $5,000. Her marginal tax rate is 24 percent. Her employer has a marginal tax rate of 21 percent. What is Bonnie's after-tax benefit?

$3,800

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 three years and sold them when the market price was $12. What is the amount of Tom's income or loss on the sale?

$4,000 loss

Rachel receives employer-provided health insurance. The employer's cost of the health insurance is $6,000 annually. What is her employer's after-tax cost of providing the health insurance, assuming that the employer's marginal tax rate is 21 percent and the employer is profitable?

$4,740

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working, when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later, she sold all of the shares for $20 per share. How much gain will Maren recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 37 percent?

$500 gain and $100 tax

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working, when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later, she sold all of the shares for $20 per share. What is the amount of Maren's bargain element?

$700

Stevie recently received 1,000 shares of restricted stock from her employer, Nicks Corporation, when the share price was $8 per share. Stevie's restricted shares vested three years later when the market price was $11. Stevie held the shares for a little more than three years and sold them when the market price was $16. Assuming Stevie made an 83(b) election, what is the amount of Stevie's ordinary income with respect to the restricted stock?

$8,000

Which of the following is false regarding dependent-care expenses?

Employers may discriminate among employees.

Which of the following statements regarding restricted stock is false?

Like nonqualified stock options, the employee's income inclusion for restricted stock is the bargain element.

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

Marginal tax rate and market price on grant date

Which of the following is not a purpose of equity-based compensation?

Provides a low- or no-cost form of compensation