Tax 1 Chapter 12 MC from Test Bank

Which of the following benefits cannot be excluded as a no additional cost service fringe benefit? A) Free tax return preparation from a client. B) Complementary dry cleaning for employees at a laundry company. C) A car wash at an automobile dealership. D) Free local phone service for phone company employees.

A

Which of the following refers to the date stock options are awarded to an employee? A) Grant date. B) Exercise date. C) Lapse date. D) Vesting date.

A

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? A) $0. B) $700. C) $900. D) $1,500. E) None of the choices are correct.

B

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? A) $0. B) $1,000. C) $3,000. D) $6,000.

B

When a publicly traded CEO's salary exceeds $1,000,000, the employee ________ taxed on the entire amount, and the employer ________ allowed a deduction on the entire amount. A) is; is B) is; is not C) is not; is D) is not; is not

B

Which of the following is false regarding dependent care expenses? A) Up to $5,000 of reimbursed expenses can qualify. B) Employers may discriminate among employees. C) Dependent children under 13 qualify. D) Spouses who are physically or mentally unable to care for themselves qualify.

B

Which of the following is not an example of a nontaxable fringe benefit? A) Monthly employer provided transit benefit of $100. B) Group-term life insurance policy providing $100,000 of coverage. C) Employer provided parking of $100 per month. D) Qualified employee discounts.

B

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.

B

Which of the following pairs of items is not needed to calculate the after-tax proceeds for a same-day sale? A) Strike price and market price on exercise date. B) Strike price and market price on grant date. C) Market price on sale date and market price on exercise date. D) Market price on sale date and marginal tax rate.

B

Which of the following statements regarding income tax withholding is incorrect? A) The withholding tables are designed so that employee withholding approximates the tax liability. B) Large itemized deductions require the need for additional withholding. C) The withholding tables vary based on filing status. D) Extra allowances can be claimed and reduce withholding.

B

Which of the following statements regarding restricted stock is false? A) Like stock options, restricted stock has to vest before it can be sold. B) Like nonqualified stock options, the employee's income inclusion for restricted stock is the bargain element. C) Even if the value of restricted stock decreases from the price on the grant date, it retains some value to the employee. D) There is no effective tax planning elections for restricted stock.

B

Which of the items is not correct regarding withholding? A) Employees that also have self-employment income can have additional amounts of federal tax withheld to avoid estimated tax payments. B) Employees cannot claim an allowance for a child unless they are entitled to claim the child as a dependent. C) Employees can claim exempt status and avoid withholding. D) Married employees can choose to have income tax withholding on wages withheld at the higher single rates.

B

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? A) $0. B) $1,200. C) $3,800. D) $5,000.

C

How is the bargain element for a stock option calculated? A) The difference between the strike price and the market price on the date of grant. B) The difference between the market price on the exercise date and the market price on the date of grant. C) The difference between the market price on the exercise date and the strike price. D) The difference between the market price on the sale date and the strike price.

C

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 a year and sold them when the market price was $16. Assuming Stevie made a section 83(b) election, what is the amount of Stevie's ordinary income with respect to the restricted stock?

C

Which of the following forms is filled out by an employee, who is a citizen, at the beginning of an employment relationship? A) Form Q-2. B) Form W-2. C) Form W-4. D) Form 1099.

C

Which of the following is a fringe benefit that employers can discriminate among employees? A) No additional cost service. B) Qualified employee discount. C) Qualified transportation fringe. D) Employee educational assistance.

C

Which of the following is not a requirement of a "qualified employee discount"? A) The discount relates to goods or services of the employer. B) The discount on services doesn't exceed 20 percent of the price offered to customers. C) The discount can be elected up to five times annually. D) The employee discount on goods is not greater than employer's average gross profit.

C

Which of the following is not an example of a taxable fringe benefit? A) Personal use of corporate jet. B) $1,000,000 group term life insurance policy. C) $225 of employer provided parking. D) Automobile allowance.

C

Which of the following isn't reported on the Form W-2? A) The employee's taxable salary and wages. B) Annual Federal and state withholding information. C) Indication as to whether an employee had more than one employer during the year. D) Annual amount of Social Security and Medicare tax withholding information.

C

Which of the following items is not included on an employee's Form W-2? A) Taxable wages, tips, and compensation. B) Social Security withholding. C) Value of stock options granted during the year. D) Federal and state income tax withholding.

C

Which of the following statements regarding employer provided educational benefits is true? A) All undergraduate tuition expenses can be excluded. B) Only educational benefits from public universities can be excluded. C) Up to $5,250 in tuition benefits can be excluded. D) All graduate tuition expenses are included.

C

Aharon exercises 10 stock options awarded several years ago. The following information pertains to the options: (1) each option gives the employee the right to buy 10 shares, (2) the market price on the grant date was $7, (3) the strike price is $10, and (4) the market price on the exercise date was $15. How much will it cost Aharon to purchase the options on the exercise date? A) $90. B) $500. C) $700. D) $1,000.

D

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 a year and sold them when the market price was $16. What is the amount of Stevie's ordinary income with respect to the restricted stock?

D

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? A) $0. B) $10,000. C) $20,000. D) $28,000.

D

Which of the following is false regarding a section 83(b) election? A) The election freezes the value of the employee's compensation as of the grant date. B) The election is an important tax planning tool if the stock is expected to increase in value. C) The election must be made within 30 days of the grant date. D) If an employee leaves before the vesting date, any loss is limited to $3,000.

D

Which of the following is not a purpose of equity-based compensation? A) Provide both risk and incentives to employees. B) Motivate employees by aligning employee and employer incentives. C) Avoid compensation limits for certain publicly traded company executives. D) Provides a low or no cost form of compensation.

D

Which of the following regarding the Form W-4 is incorrect? A) Determines an employee's income tax withholding. B) Employees can claim more allowances than personal exemptions that will be claimed. C) Employees can specify additional amounts to be withheld each month. D) The form can only be adjusted at the beginning of year or start of employment.

D

Which of the following statements concerning cafeteria plans is true? A) Allows employees to choose from a menu of fringe benefits or to choose cash. B) Most of the menu choices are nontaxable fringe benefits. C) Any receipt of cash option that is elected in at taxable compensation. D) All of the statements are true.

D

Which of the following statements is true regarding the $1,000,000 limit on covered employees for publicly traded companies? A) The limitation applies to all employees. B) The limitation applies to all officers. C) The limitation applies only to the CEO and three other highest compensated officers. D) The limitation applies only to the CEO, CFO, and three other highest compensated officers and all covered employees from previous years.

D

Which of the following statements regarding compensation is false? A) Wages are usually paid by the hour. B) Salary is usually a form of fixed compensation. C) Bonuses are a form of compensation obtained if certain criteria are met. D) Bonuses paid within 2½ months of year-end are included in employee's compensation in the year they were earned.

D