Chapter 12 Mathematics Quiz

41 Questions | By Aerazan | Updated: Mar 22, 2022 | Attempts: 230

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1.

Which of the following forms is filled out by an employee, who is a citizen, at the beginning of an employment relationship?
- A.
  
  W-9
- B.
  
  W-2
- C.
  
  W-4
- D.
  
  FORM 1099
2.

Which of the following items is not included on an employee's Form W-2?
- A.
  
  Taxable wages tips and compensation
- B.
  
  Social Security withholding
- C.
  
  Value of stock options granted during the year
- D.
  
  Federal and state income tax withholding
3.

Which of the following statements regarding compensation is false?
- A.
  
  Wages are usually paid by the hour
- B.
  
  Salary is usually a form of fixed compensation
- C.
  
  Bonuses are a form of compensation obtained if certain criteria are met
- D.
  
  Bonuses paid within 2.5 months of year end are included in employee's compensation in the year they were earned
4.

Which of the following statements regarding income tax withholding is incorrect?
- A.
  
  The withholding tables are designed so that employee withholding approximates the tax liability
- B.
  
  Large itemized deductions require the need for additional withholding
- C.
  
  The withholding tables vary based on filing status
- D.
  
  Extra allowances can be claimed and reduce withholding
5.

Which of the following isn't done by Form W-2?
- A.
  
  Summarizes the employee's taxable salary and wages
- B.
  
  Provides annual Federal and State withholding information
- C.
  
  Indicates whether an employee had more than one employer during the year
- D.
  
  Generated by an employer annually
6.

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
7.

Which of the following regarding the Form W-4 is incorrect?
- A.
  
  Determines an employee's income tax withholding
- B.
  
  Employees can claim more allowances than personal exemptions that will be claimed
- C.
  
  Employees can specify additional amounts to be withheld each month
- D.
  
  The form can only be adjusted at the beginning of the year or start of employment
8.

Which of the following statements is true regarding excess Social Security contributions by an employer?
- A.
  
  Excess contributions are treated as additional income tax withholding payments.
- B.
  
  A second employer can stop withholding once an employee's total contributions reach the Social Security wage base.
- C.
  
  The Treasury returns excess Social Security Withholding to employers.
- D.
  
  Excess contributions are treated as voluntary contributions to the Treasury.
9.

When a CEOs salary exceeds $1,000,000, the employee _____ taxed on the entire amount, and the employer ______ allowed a deduction on the entire amount.
- A.
  
  Is, is
- B.
  
  Is, is not
- C.
  
  Is not, is
- D.
  
  Is not, is not
10.

Which of the following is not a purpose of equity-based compensation?
- A.
  
  Provide risk and incentives to employees
- B.
  
  Motivate employees by aligning employee and employer incentives
- C.
  
  Avoid compensation limits for executives
- D.
  
  Provides a low or no cost form of compenssation
11.

Which of the following is true regarding stock options?
- A.
  
  A loss is realized when stock options lapse
- B.
  
  There is typically no tax effect on the grant date
- C.
  
  Income recognized on the exercise date is greater for incentive stock options than nonqualified options
- D.
  
  The bargain element on non qualified option is taxed to employees at capital gain rates
12.

Which of the following refers to the date stock options are awarded to an employee?
- A.
  
  Grant date
- B.
  
  Exercise date
- C.
  
  Lapse date
- D.
  
  Vesting date
13.

Aharon exercises 10 stock options awarded several years ago. The following information pertains to the options: (1) each option gives the employee the right to buy 10 shares, (2) the market price on the grant date was $7, (3) the strike price is $10, and (4) the market price on the exercise date was $15. How much will it cost Aharon to purchase the options on the exercise date?
- A.
  
  90
- B.
  
  500
- C.
  
  700
- D.
  
  1,000
14.

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. What is the amount of Maren's bargain element?
- A.
  
  0
- B.
  
  700
- C.
  
  900
- D.
  
  1,500
15.

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?
- A.
  
  0 gain and 0 tax
- B.
  
  500 gain and 75 tax
- C.
  
  500 gain and 175 tax
- D.
  
  1,200 gain and 180 tax
16.

How is the bargain element for a stock option calculated?
- A.
  
  The difference between the strike price and the market price on the date of grant.
- B.
  
  The difference between the market price on the exercise date and the market price on the date of grant.
- C.
  
  The difference between the market price on the exercise date and the strike price.
- D.
  
  The difference between the market price on the sale date and the strike price.
17.

Which of the following pairs of items is not needed to calculate the after-tax proceeds for a same-day sale?
- A.
  
  Strike price and market price on exercise date
- B.
  
  Strike price and market price on grant date
- C.
  
  Market price on sale date and market price on exercise date
- D.
  
  Market price on sale date and marginal tax rate
18.

Bad 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 Bad Brad sells the stock for $27 per share, what is Bad 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
19.

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.
20.

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 $20. What is the amount of Tom's income or loss on the vesting date?
- A.
  
  0
- B.
  
  10,000
- C.
  
  20,000
- D.
  
  28,000
21.

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
22.

Which of the following is false regarding a section 83(b) election?
- A.
  
  The election freezes the value of the employee's compensation at 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.
23.

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
24.

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
25.

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