BUSI 421 Exam 3 Liberty University Prof. Cornfield
In order for a publicly held company to receive an income tax deduction for executive compensation, what is the maximum allowable amount of cash compensation paid to a CEO?
$1,000,000
Valquez Alura, an executive with Harbor Millwork, is covered under her company's incentive stock option (ISO) plan. Under the plan, Valquez is granted an option in 2012 to purchase company stock for $50 per share. In April of 2014, Valquez excercises this option and purchases 100 shares for $5,000. The fair market value of the shares when she exercised the option was $7,500. In November of 2015, she sold the 100 shares for $10,000. What is Valquez's compensation income from this transaction?
$2,500
Which of the following are regulations governing ESPPs?
(1) (2) and (3) only
Assuming appropriate regulations and requirements are followed, which of the following correctly identify tax issues related to ESPPs?
(1) and (2) only
How long must stock acquired by an employee under the ISO be held to satisfy section 422 regulations?
(1) and (2) only
Which of the following items normally would be included in an employee census?
(1), (2), and (3) only
Which of the following options are reasons why employees may need employer-sponsored benefit plans?
(1), (2), and (3) only
What benefit is gained by offering an ISO?
(2) (3) and (4) only
Which of the following are tax sanctions on amounts characterized as excess parachute payments?
(3) and (4) only
Only the first $_____ worth of an ISO stock granted any one employee is entitled to favorable tax treatment.
100,000
An employee can purchase no more than $____ of stock under an ESPP in any one calendar year
25,000
High-deductible health insurance is required with which of the following?
A Health Savings Account
A flexible spending plan is beneficial when
A and B
Advantages of a restricted stock plan include which of the following?
All of the above
An employer can use a restricted stock plan to
All of the above
Common exclusions is a long-term disability policy include which of the following?
All of the above
Disadvantage of a stock option include which of the following?
All of the above
Disadvantages of an employee stock purchase plan include
All of the above
In health insurance plan design, which of the following are vitally important aspects of that design?
All of the above
In lieu of a bonus, an employer can provide a tax-deferred benefit to employees by using
All of the above
Which of the following can an employer choose when designing a short-term disability or sick pay policy?
All of the above
Which of the following is true regarding health care costs?
All of the above
Which of the following is true regarding restricted stock plans?
All of the above
Which of the following types of health insurance was originally designed by an organization of hospitals & physicians to facilitate payment of hospital and doctor bills?
Blue Cross/ Blue Shield
Advantages of a cafeteria plan include
Cafeteria plans can be structured to meet a variety of employee benefit needs
Disadvantages of cafeteria plans include all of the following except
Cafeteria plans provide numerous different benefits to employees in addition to basic benefits shared by all employees
How are severance payments usually considered by the IRS when they are made pursuant to a written agreement that is entered into while the employee is still actively at work?
Compensation for employee services
Disadvantages of a flexible spending account include all of the following except
Employer must contribute to employee flexible spending accounts
What amount is included in the executive's AMT calculation when an ISO is exercised?
Excess of the stock's fair market value over the option price at time of exercise
What is the minimum allowable exercise price of the option?
Fair market value of the stock on the date the option is granted
Which one of the following weakens the value of an ESPP as a performance incentive?
Fluctuation in the market value of the stock is likely to have little or no relation to employee performance
Executive Michael Waldron was company stock obtained through an incentive stock option plan. Waldron has held the stock 3 years after the option was granted and 2 years after exercise of the option. Michael sold the stock last month. Tax consequences for Michael include
Gain on sale is taxed at long-term capital gain rates
Which of the following is true regarding HSA funding?
HSA funding is not subject to income tax
Some health economists argue that offering an HSA as an alternative to traditional health insurance will eventually increase premiums for traditional health insurance because
Healthy, high-income employees will select the HSA, leaving relatively sicker and older employees in the traditional health plan
Under the Affordable Care Act, all of the following are considered essential benefits, except
Hearing care services and devices
Advantages of an incentive stock option (ISO) include which of the following?
ISOs generate greater deferral of taxes to an executive than nonstatutory stock options
Which of the following is seen as a primary advantage to bonus compensation?
It allows flexibility to reflect company performance
Incentive stock options are used mostly by
Large C corporations with public stock
An employee stock purchase plan is a tax-advantaged form of employee compensation that is most effectively used in a
Large corporation with publicly traded stock
Employee benefits under a Health Reimbursement Arrangement are tax free if
Only A and B
Advantages of cash compensation include
Only a and b
Objectives that employers have for benefit plans include
Only a and b
A Health Reimbursement Arrangement cannot
Provide extra benefits exclusively for a business owner and key employees
An ESPP is popular with employees as a type of
Savings
Disadvantages of restricted stock plans from the view of the employer include all of the following, except
Substantial risk or forfeiture must be established for the employee to obtain favorable tax treatment
In 2016, Susan is granted stock options for 500 shares of her publicly-traded employer. The option price is $40 per share, and at the time the options are granted the stock is trading for $67 per share. Susan does not exercise her options until 2018, at which time the stock is trading for $80 per share. As a result of exercising the options:
Susan will have $11,500 in income in 2018
What is the usual tax treatment of unfunded severance plan payments?
Taxable to the recipient as compensation income in the year it was received
What is considered to be the basis in shares acquired under a stock option plan when an option has no readily ascertainable fair market value?
The amount paid for the stock plus the amount of taxable income reported at the time the option was exercised
The bargain element is
The difference between the fair market value of the shares at the date of purchase and the option price
The disadvantages of an incentive stock option (ISO) include all of the following except
The recipient must pay tax when the ISO is issued
At what point does an employer normally receive a tax deduction for a restricted stock plan?
The year in which the property becomes substantially vested
In the absence of any additional agreement, when is the employee usually taxed on stock options?
When the option is exercised