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Exam 12: Compensation

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Question 41

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Which of the items is not correct regarding withholding?

A) Employees that also have self employment income can have additional amounts 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 and avoid withholding.
D) Married employees can choose to be withheld at the higher single rates.

E) A) and B)
F) A) and C)

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Question 42

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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?

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Question 43

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Which of the following statements regarding compensation is false?

Employees will always prefer to receive incentive stock options over nonqualified stock options.

Leesburg paid its employee $200,000 of compensation for the year. What is the after-tax cost of paying the salary assuming a 30 percent marginal tax rate (ignore payroll taxes)?

Hotel employees can receive free nights lodging on a space available basis without incurring compensation.

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?

Frederique works for a furniture retailer. The shop allows all employees to purchase 10 pieces of furniture per year at a discount. This year Frederique purchased eight pieces. She gave three pieces as a gift to her brother as a wedding present. Her employer's average gross profit percentage is 25 percent. Each piece was 20 percent off of normal retail prices and in all cases the employee price exceeded the employer's cost. What amount of the discount must be included in Frederique's income?

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.

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?

Which of the following isn't done by Form W-2?

How is the bargain element for a stock option calculated?

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

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 and how much tax will she pay assuming her marginal tax rate is 35 percent?

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

Which of the following statements regarding income tax withholding is incorrect?

For 2014, up to $300 of qualified transportation fringe benefits can be excluded from income.

Stock options will always provide employees with future compensation.

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

Employer's expense for stock options is typically recognized earlier for book than tax purposes.