Question 1

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.Employees may exclude up to $5,000 of dependent care expenses.

Accepted Answer

Tasha can exclude up to $5,000 of dependent care expenses from her income. Since she received $6,000, the excess $1,000 is includible in her income.

Question 2

Kevin is the financial manager of Levingston BMW.The shop allows employees to purchase up to two vehicles at a discount.This year Kevin purchased a 530 model and a new M3.  If the average gross profit percentage of the shop's goods is 12%,what amount must Kevin include in income?
A)$0
B)$1,640
C)$3,000
D)$17,000

Accepted Answer

The answer of Kevin is the financial manager of Levingston...

Question 3

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.The service must be provided at no additional cost by the employer.

Accepted Answer

Free tax return preparation from a client does not qualify as a no additional cost service fringe benefit because it is not a service provided by the employer in the ordinary course of business.

Question 4

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?
A)$0.
B)$1,250.
C)$3,750.
D)$5,000.The after-tax benefit is the $5,000 benefit less the $1,250 ($5,000 × 25 percent) of tax.

Accepted Answer

Bonnie's after-tax benefit is calculated by subtracting the tax on the benefit from the cost of the membership. The tax on the benefit is 25 percent of $5,000, or $1,250. Therefore, Bonnie's after-tax benefit is $5,000 - $1,250 = $3,750.

Question 5

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 its marginal tax rate is 35 percent?
A)$0
B)$3,900
C)$4,198
D)$6,000

Accepted Answer

The employer's after-tax cost is calculated by reducing the cost of the insurance by the tax savings. The tax savings is the cost of the insurance multiplied by the tax rate: $6,000 * 0.35 = $2,100. Therefore, the after-tax cost is $6,000 - $2,100 = $3,900.

Question 6

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.$8,000 (1,000 shares × $8 market price on grant date) .

Accepted Answer

When Stevie received the restricted stock, it had a value of 1,000 shares x $8 per share = $8,000. Assuming she made a section 83(b) election, she included this $8,000 in her ordinary income in the year she received the stock. When the shares vested three years later, the market price was $11 per share, so the total value of the shares was 1,000 shares x $11 per share = $11,000. Stevie did not owe any additional ordinary income tax at this time, as she had already included the value of the shares when she received them. When Stevie sold the shares a little over a year later when the market price was $16 per share, she realized a capital gain of 1,000 shares x ($16 selling price - $11 vesting price) = $5,000.

Question 7

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 doesn't exceed the average gross profit percentage of the employer's goods.
C)The discount can be elected up to five times annually.
D)The employer's actual price for the good sold is irrelevant.There is no limitation on the number of times the employees can use the discount.

Accepted Answer

The other three options are requirements for a "qualified employee discount" according to the IRS. However, there is no specific limitation on the number of times the discount can be elected, so option D is not applicable. Option C, on the other hand, incorrectly states that the discount can be elected up to five times annually, which is not a requirement.

Question 8

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.See Exhibit 12-13.

Accepted Answer

Qualified transportation fringe benefits can be provided selectively to certain employees without violating nondiscrimination rules.

Question 9

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 cash elected is treated at taxable compensation.
D)All of these are true statements.See discussion in text.

Accepted Answer

All of the statements are true. A cafeteria plan allows employees to choose from a menu of fringe benefits or to choose cash, most of which are nontaxable fringe benefits, and any cash elected is treated as taxable compensation.

Question 10

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.The value of a company picnic is a nontaxable fringe benefit,but it is not a "for the convenience of the employer" benefit.

Accepted Answer

A company picnic is a nontaxable fringe benefit, but it does not qualify as a "for the convenience of the employer" benefit. The other options listed qualify under the "for the convenience of the employer" exception to taxable fringe benefits.

Question 11

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)$200 of monthly employer provided parking.
D)Automobile allowance.Employer provided parking is nontaxable up to $245 per month.

Accepted Answer

Employer provided parking is nontaxable up to $245 per month.

Question 12

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? 
A)$0.
B)$15.00.
C)$22.00.
D)$58.33.$200,000 policy less $50,000 exemption times 10 cents per month per thousand of coverage.

Accepted Answer

The answer of Grace's employer is now offering group-term life...

Question 13

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 by the shop for $225,and sold to Francis for $250.If the average gross profit percentage of the shop's goods is 20%,what amount of the discount must be included in Francis' income?
A)$0
B)$25
C)$60
D)Some other amount.Because the discount was less than the average gross profit percentage of the shop's goods,and above cost,there is no income inclusion.

Accepted Answer

The discount given to Francis is less than the average gross profit percentage of the shop's goods, so it does not need to be included in his income.

Question 14

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.Only $50,000 of group-term life insurance qualifies as a nontaxable fringe benefit.

Accepted Answer

All of the options except for B are examples of nontaxable fringe benefits. Group-term life insurance policies providing coverage over $50,000 are taxable fringe benefits.

Question 15

Tanya's employer offers a cafeteria plan that allows employees to choose among a number of benefits.Each employee is allowed $6,000 in benefits.For 2013,Tanya selected $3,000 of parking,$2,000 in 401(k) contributions,and $1,000 of cash.How much must Tanya include in taxable income?
A)$60.
B)$1,000.
C)$1,060.
D)$4,000.$1,060 is includable: $60 of parking benefits [$3,000 - ($245 excludable amount × 12) ] and $1,000 of cash.

Accepted Answer

Tanya must include $60 of parking benefits and $1,000 of cash in her taxable income, totaling $1,060. The $2,000 in 401(k) contributions are not included in taxable income as they are pre-tax deductions.

Question 16

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.An annual benefit of $5,250 can be excluded.

Accepted Answer

The statement that up to $5,250 in tuition benefits can be excluded from employer provided educational benefits is true.

Question 17

Lara,a single taxpayer with a 30 percent marginal tax rate,desires health insurance.The health insurance would cost Lara $5,000 to purchase if she pays for it herself (Lara's AGI is too high to receive any tax deduction for the insurance as a medical expense) .Lara's employer has a 40 percent marginal tax rate.Ignoring payroll taxes,what is the maximum amount of before-tax salary Lara would give up to receive health insurance?
A)$1,500.
B)$5,000.
C)$7,143.
D)$8,333.$5,000/(1 - .3) .

Accepted Answer

Since Lara's employer has a higher marginal tax rate, it is more tax efficient for her to receive health insurance as a fringe benefit. The maximum amount of before-tax salary she would give up is calculated as follows:
$5,000 / (1 - 0.4) = $8,333.33
Therefore, the correct answer is (C) $7,143, rounded to the nearest dollar.

Question 18

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.Employers may not discriminate with respect to dependent care expenses.

Accepted Answer

Employers may not discriminate with respect to dependent care expenses. Discriminating among employees based on factors such as age, sex, and marital status is prohibited under federal law. Employers must offer dependent care assistance on a nondiscriminatory basis to all employees who meet the eligibility requirements.

Quiz 12: Compensation

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?

Kevin is the financial manager of Levingston BMW.The shop allows employees to purchase up to two vehicles at a discount.This year Kevin purchased a 530 model and a new M3. If the average gross profit percentage of the shop's goods is 12%,what amount must Kevin include in income?

Which of the following benefits cannot be excluded as a no additional cost service fringe benefit?

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?

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 its marginal tax rate is 35 percent?

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

Which of the following is a fringe benefit that employers can discriminate among employees?

Which of the following statements concerning cafeteria plans is true?

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

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

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

Tanya's employer offers a cafeteria plan that allows employees to choose among a number of benefits.Each employee is allowed $6,000 in benefits.For 2013,Tanya selected $3,000 of parking,$2,000 in 401(k) contributions,and $1,000 of cash.How much must Tanya include in taxable income?

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

Which of the following is false regarding dependent care expenses?