Tax Chapter 12
Showing posts with label Tax Chapter 12. Show all posts
Showing posts with label Tax Chapter 12. Show all posts

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?

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


Answer: B

Which of the following statements concerning cafeteria plans is true?

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 is treated at taxable compensation.

D. All of these are true statements.


Answer: D

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehicles at a discount. Levingston's average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3.

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehicles at a discount. Levingston's average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3.


Model FMV Dealer Cost Employee Price

530 $63,000 $50,000 $54,000

M3 $70,000 $60,000 $57,000


What amount must Kevin include in income?


A. $0

B. $2,500

C. $2,950

D. $22,000


Answer: B

Which of the following is false regarding dependent care expenses?

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.


Answer: B

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

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.


Answer: C

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' income?

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' income?


A. $0

B. $25

C. $40

D. Some other amount.


Answer: A

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

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.


Answer: B

Which of the following does not qualify as a "for the convenience of the employer" nontaxable fringe benefit?

Which of the following does not qualify as a "for the convenience of the employer" nontaxable fringe benefit?


A. The fair market value of the rent of an apartment manager living on the premises.

B. An overtime meal provided to an employee while working late.

C. A meal provided by a hospital to residents during their shift.

D. A company picnic.


Answer: D

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

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.



Answer: C

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.

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


5-Year Age Bracket Cost per $1,000 of Protection for One Month

Under 25 $0.05

25 to 29 .06

30 to 34 .08

35 to 39 .09

40 to 44 .10

45 to 49 .15

50 to 54 .23

55 to 59 . 43

60 to 64 .66

65 to 69 1.27

70 and above 2.06


A. $0.

B. $15.00.

C. $22.00.

D. $58.33.


Answer: B

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?

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?


A. $0.

B. $5,000.

C. $8,000.

D. $11,000.


Answer: 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. Assuming Stevie made a section 83(b) election, what is the amount of Stevie's ordinary income with respect to the restricted stock?

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?


A. $0.

B. $5,000.

C. $8,000.

D. $11,000.


Answer: C

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 $12. What is the amount of Tom's income or loss on the sale?

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 $12. What is the amount of Tom's income or loss on the sale?


A. $0

B. $2,000 loss

C. $4,000 gain

D. $4,000 loss


Answer: D

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

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.


Answer: D

Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 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 intends to exercise all of the options. Two years later Brad sells the stock for $27 per share. What is Brad's basis in his stock for purposes of calculating the gain or loss?

Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 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 intends to exercise all of the options. Two years later Brad sells the stock for $27 per share. What is Brad's basis in his stock for purposes of calculating the gain or loss?


A. $6,000.

B. $9,000.

C. $15,000.

D. $16,200.


Answer: C

Which of the following statements regarding restricted stock is false?

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.



Answer: B
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