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Exam 12: Compensation

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Question 21

True/False

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

A) True
B) False

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Question 22

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Stock options will always provide employees with future compensation.

A) True
B) False

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Question 23

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Big Bucks,a publicly-traded corporation,paid its CEO $1,500,000 of base compensation for the year.What is the after-tax cost of paying the salary assuming a 30 percent marginal tax rate?

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. EXHIBIT 12-10 Uniform Premiums for $1,000 of Group-Term Life Insurance Protection $\begin{array} { l c } 5 - \text { Year Age Bracket } & \text { Cost per \$1,000 of Protection for One Month } \\\text { Under } 25 & \$ 0.05 \\25 \text { to } 29 & 0.06 \\30 \text { to } 34 & 0.08 \\35 \text { to } 39 & 0.09 \\40 \text { to } 44 & 0.10 \\45 \text { to } 49 & 0.15 \\50 \text { to } 54 & 0.23 \\55 \text { to } 59 & 0.43 \\60 \text { to } 64 & 0.66 \\65 \text { to } 69 & 1.27 \\70 \text { and above } & 2.06\end{array}$

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

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

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 35 percent and is profitable?

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

Lina,a single taxpayer with a 35 percent marginal tax rate,desires health insurance.The health insurance would cost Lina $8,000 to purchase if she pays for it herself (Lina's AGI is too high to receive any tax deduction for the insurance as a medical expense).Because of group discounts,her employer can purchase the insurance for $6,000.Lina's employer has a 30 percent marginal tax rate.What would be the after-tax cost to Lina's employer to provide her with health insurance?

One primary purpose of equity compensation is to motivate employees.

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 ten additional months 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 items is not correct regarding withholding?

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

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 and sold them when the market price was $15.What is the amount of Rick's gain on the sale of the stock? Assuming a marginal tax rate of 39.6 percent,what is Rick's tax on the sale of the stock?

Which of the following is false regarding dependent care expenses?

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

Kimberly's employer provides her with a personal travel allowance of $10,000 annually.Her marginal tax rate is 30 percent.Her employer has a marginal tax rate of 35 percent.What is Kimberly's after-tax benefit,ignoring payroll taxes?

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 the current year,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?

Bonnie's employer provides her with an annual dinner club membership costing $5,000.Her marginal tax rate is 25 percent.Her employer has a marginal tax rate of 35 percent.What is Bonnie's after-tax benefit?

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