Chapter 12 Mathematics Quiz

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Chapter 12 Mathematics Quiz - Quiz

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Questions and Answers
  • 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

    Correct Answer
    C. W-4
    Explanation
    The W-4 form is filled out by an employee, who is a citizen, at the beginning of an employment relationship. This form is used to provide the employer with the necessary information to withhold the correct amount of federal income tax from the employee's paycheck. It includes details such as the employee's name, address, marital status, number of allowances, and any additional withholding amounts. The W-9 form is used to provide the employer with the employee's taxpayer identification number, while the W-2 form is used to report the employee's wages and taxes withheld at the end of the year. Form 1099 is used to report income received from sources other than an employer.

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  • 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

    Correct Answer
    C. Value of stock options granted during the year
    Explanation
    The value of stock options granted during the year is not included on an employee's Form W-2. A Form W-2 is a tax form that employers are required to provide to their employees, which summarizes the employee's annual earnings and the amount of taxes withheld. It includes information such as taxable wages, tips and compensation, Social Security withholding, and federal and state income tax withholding. However, the value of stock options granted during the year is not considered taxable income until the options are exercised or sold, so it is not included on the Form W-2.

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  • 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

    Correct Answer
    D. Bonuses paid within 2.5 months of year end are included in employee's compensation in the year they were earned
    Explanation
    Bonuses paid within 2.5 months of year end are not included in the employee's compensation in the year they were earned. Instead, they are typically included in the following year's compensation.

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  • 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

    Correct Answer
    B. Large itemized deductions require the need for additional withholding
    Explanation
    Large itemized deductions do not necessarily require the need for additional withholding. Itemized deductions are subtracted from the taxpayer's adjusted gross income to determine their taxable income, but they do not directly affect the amount of tax withheld from their paycheck. Withholding is primarily based on the taxpayer's filing status, income, and the number of allowances claimed.

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  • 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

    Correct Answer
    C. Indicates whether an employee had more than one employer during the year
    Explanation
    Form W-2 is a document that summarizes an employee's taxable salary and wages, provides annual Federal and State withholding information, and is generated by an employer annually. However, it does not indicate whether an employee had more than one employer during the year. This information is typically indicated on Form 1099, which is used to report income from self-employment or freelance work.

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  • 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

    Correct Answer
    B. Employees cannot claim an allowance for a child unless they are entitled to claim the child as a dependent
    Explanation
    Employees cannot claim an allowance for a child unless they are entitled to claim the child as a dependent. This means that an employee cannot claim a child as a dependent for tax purposes if they are not legally entitled to do so. This is an important rule to prevent fraudulent claims and ensure that only eligible individuals receive tax benefits for dependents.

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  • 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

    Correct Answer
    D. The form can only be adjusted at the beginning of the year or start of employment
    Explanation
    The correct answer is that the form can only be adjusted at the beginning of the year or start of employment. This statement is incorrect because the Form W-4 can be adjusted throughout the year. Employees can make changes to their withholding allowances or specify additional amounts to be withheld at any time, not just at the beginning of the year or start of employment.

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  • 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.

    Correct Answer
    D. Excess contributions are treated as voluntary contributions to the Treasury.
    Explanation
    Excess Social Security contributions by an employer are treated as voluntary contributions to the Treasury. This means that the employer's additional contributions beyond the required amount are considered as voluntary payments to the government. These excess contributions are not returned to the employer, but rather treated as a form of additional funding for the Treasury.

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  • 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

    Correct Answer
    B. Is, is not
    Explanation
    When a CEO's salary exceeds $1,000,000, the employee is taxed on the entire amount, meaning that they have to pay taxes on the full salary. However, the employer is not allowed a deduction on the entire amount, indicating that they cannot deduct the CEO's entire salary from their taxable income.

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  • 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

    Correct Answer
    D. Provides a low or no cost form of compenssation
    Explanation
    Equity-based compensation is a form of compensation that involves granting employees shares or stock options in the company. It is used to provide risk and incentives to employees, motivate them by aligning their interests with the employer's, and avoid compensation limits for executives. However, it does not provide a low or no-cost form of compensation. In fact, issuing equity can be costly for the company as it dilutes existing shareholders' ownership and may require additional administrative expenses.

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  • 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

    Correct Answer
    B. There is typically no tax effect on the grant date
    Explanation
    On the grant date of stock options, there is typically no tax effect. This means that employees do not have to pay any taxes on the value of the options they receive at that time. The tax implications of stock options usually occur when they are exercised or sold. Therefore, the correct answer is that there is no tax effect on the grant date.

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  • 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

    Correct Answer
    A. Grant date
    Explanation
    The grant date refers to the date when stock options are awarded to an employee. It is the date on which the employer grants the employee the right to purchase company stock at a specified price. This date is important because it marks the beginning of the employee's ownership rights and the potential for financial gain through the stock options.

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  • 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

    Correct Answer
    D. 1,000
    Explanation
    Aharon exercises 10 stock options at a strike price of $10. Since each option gives him the right to buy 10 shares, he will be purchasing a total of 100 shares. The market price on the exercise date is $15, so it will cost Aharon $15 per share to purchase the options. Therefore, the total cost for Aharon to purchase the options on the exercise date will be $15 x 100 = $1,500.

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  • 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

    Correct Answer
    B. 700
    Explanation
    Maren's bargain element is $700. The bargain element is the difference between the market price at the time of exercise and the exercise price multiplied by the number of options exercised. In this case, Maren exercised 10 options, and the difference between the market price of $15 and the exercise price of $8 is $7. Therefore, the bargain element is $7 multiplied by 10, which equals $70. Since Maren sold all the shares for $20 per share, the total bargain element is $70 multiplied by 10, which equals $700.

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  • 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

    Correct Answer
    B. 500 gain and 75 tax
    Explanation
    Maren will recognize a gain of $500 on the sale because she exercised her options when the stock price was $15 per share and sold the shares for $20 per share, resulting in a $5 per share gain. Since she had 10 NQOs, each giving her the right to purchase 10 shares, she sold a total of 100 shares, resulting in a $500 gain. Assuming her marginal tax rate is 35 percent, she will pay $75 in taxes, which is 35 percent of the $500 gain. Therefore, the correct answer is 500 gain and 75 tax.

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  • 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.

    Correct Answer
    C. The difference between the market price on the exercise date and the strike price.
    Explanation
    The bargain element for a stock option is calculated as the difference between the market price on the exercise date and the strike price. This calculation determines the profit or gain obtained from exercising the stock option. By subtracting the strike price (the price at which the option can be exercised) from the market price (the current price of the stock), the bargain element represents the amount of value gained through the option.

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  • 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

    Correct Answer
    B. Strike price and market price on grant date
    Explanation
    To calculate the after-tax proceeds for a same-day sale, the market price on sale date and the marginal tax rate are needed. The strike price and market price on grant date are not necessary for this calculation. The after-tax proceeds are determined by subtracting the tax amount from the sale proceeds, which is based on the market price on the sale date and the individual's marginal tax rate. The strike price and market price on grant date are not relevant in this context as they do not affect the tax calculation for a same-day sale.

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  • 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

    Correct Answer
    C. 15,000
    Explanation
    Bad Brad's basis in his stock for purposes of calculating the gain or loss is $15,000. This is calculated by multiplying the number of options (20) by the number of shares per option (30), and then multiplying that by the exercise price ($10). So, 20 * 30 * $10 = $6,000. However, since the stock price at the time of exercise was $25 per share, the value of the stock is 20 * 30 * $25 = $15,000. This is Bad Brad's basis in the stock.

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  • 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.

    Correct Answer
    B. Like nonqualified stock options, the employee's income inclusion for restricted stock is the bargain element.
    Explanation
    Restricted stock is a form of compensation where the stock is granted to an employee, but it is subject to certain restrictions and conditions. The employee does not have to pay anything to receive the stock, so there is no "bargain element" involved. Instead, the employee's income inclusion for restricted stock is the fair market value of the stock on the date it vests. Therefore, the statement that the employee's income inclusion for restricted stock is the bargain element is false.

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  • 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

    Correct Answer
    D. 28,000
    Explanation
    Tom's income on the vesting date is $28,000. This is calculated by subtracting the initial cost of the shares ($10 per share) from the market price on the vesting date ($14 per share), and then multiplying it by the number of shares (2,000). Therefore, (14 - 10) x 2,000 = $28,000.

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  • 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

    Correct Answer
    D. 4,000 loss
    Explanation
    Tom received 2,000 shares of restricted stock when the share price was $10 per share, resulting in a total value of $20,000. After three years, when the shares vested, the market price had increased to $14 per share, making the total value $28,000. Tom sold the shares a little over a year later when the market price was $12 per share, resulting in a total value of $24,000. Since the sale price is lower than the vested value, Tom incurred a loss of $4,000.

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  • 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.

    Correct Answer
    D. If an employee leaves before the vesting date any loss is limited to $3,000.
    Explanation
    The given statement is false because if an employee leaves before the vesting date, any loss is not limited to $3,000. The section 83(b) election does not impose any limitations on the amount of loss that can be incurred if an employee leaves before the vesting date. The election primarily allows employees to include the value of the stock at the grant date in their taxable income, potentially resulting in lower taxes if the stock appreciates in value.

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  • 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

    Correct Answer
    D. 11,000
    Explanation
    Stevie's ordinary income with respect to the restricted stock is $11,000. This is because the amount of ordinary income for restricted stock is equal to the fair market value of the stock at the time it vests, which in this case is $11 per share. Since she received 1,000 shares, her ordinary income is calculated as $11 x 1,000 = $11,000.

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  • 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

    Correct Answer
    C. 8,000
    Explanation
    Stevie's ordinary income with respect to the restricted stock is $8,000. This is because when Stevie received the restricted stock, it had a fair market value of $8 per share. Since she made a section 83(b) election, she included this amount as ordinary income in the year she received the stock. The subsequent increase in the market price of the stock does not affect the amount of her ordinary income. Therefore, the correct answer is 8,000.

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  • 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

    Correct Answer
    C. 200 of monthly employer provided parking
    Explanation
    The personal use of a corporate jet, a $1,000,000 group term life insurance policy, and an automobile allowance are all examples of taxable fringe benefits. However, $200 of monthly employer provided parking is not considered a taxable fringe benefit.

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  • 26. 

    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

    Correct Answer
    C. 3,750
    Explanation
    Bonnie's after-tax benefit is $3,750. This can be calculated by subtracting Bonnie's marginal tax rate of 25% from 100% to get her after-tax rate of 75%. Then, multiplying her after-tax rate by the cost of the dinner club membership ($5,000) gives us $3,750.

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  • 27. 

    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

    • C.

      22

    • D.

      58.33

    Correct Answer
    B. 15
  • 28. 

    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

    Correct Answer
    B. Group term life insurance policy providing 100,000 of coverage
    Explanation
    The group term life insurance policy providing $100,000 of coverage is not an example of a nontaxable fringe benefit because life insurance coverage is generally considered a taxable benefit.

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  • 29. 

    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.

    Correct Answer
    D. A company picnic.
    Explanation
    A company picnic qualifies as a "for the convenience of the employer" nontaxable fringe benefit because it is provided by the employer for the benefit and enjoyment of the employees. It is considered a de minimis fringe benefit, which means its value is so small that accounting for it would be unreasonable or administratively impractical. The fair market value of the rent of an apartment manager living on the premises, an overtime meal provided to an employee while working late, and a meal provided by a hospital to residents during their shift also qualify as nontaxable fringe benefits for the convenience of the employer.

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  • 30. 

    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

    Correct Answer
    B. 3,900
    Explanation
    The employer's after-tax cost of providing the health insurance is $3,900. This is calculated by subtracting the tax savings from the total cost of the health insurance. The tax savings can be found by multiplying the total cost by the marginal tax rate (35% in this case). So, $6,000 x 35% = $2,100. Subtracting this tax savings from the total cost gives us $6,000 - $2,100 = $3,900.

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  • 31. 

    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.

    Correct Answer
    C. Up to $5,250 in tuition benefits can be excluded.
    Explanation
    Up to $5,250 in tuition benefits can be excluded. This means that an employer can provide educational benefits to an employee for undergraduate or graduate tuition expenses, and up to $5,250 of these expenses can be excluded from the employee's taxable income. This exclusion applies to both public and private universities, not just public universities.

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  • 32. 

    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

    Correct Answer
    A. Free tax return preparation from a client
  • 33. 

    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

    Correct Answer
    C. The discount can be elected up to five times annually
    Explanation
    The correct answer is "The discount can be elected up to five times annually." This means that there is no limitation on the number of times an employee can elect to receive the discount in a year. The other options are requirements for a qualified employee discount, such as the discount being related to the employer's goods or services, not exceeding the average gross profit percentage, and the employer's actual price for the goods being irrelevant.

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  • 34. 

    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

    Correct Answer
    A. 0
    Explanation
    The question states that Francis purchased the rod at a discounted price of $250, which is higher than the cost price of the shop ($225). This means that the shop did not make any profit on this particular sale to Francis. Since there was no profit made, there is no amount of discount that needs to be included in Francis' income. Therefore, the correct answer is 0.

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  • 35. 

    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.

      1640

    • C.

      3000

    • D.

      17,000

    Correct Answer
    B. 1640
    Explanation
    Kevin must include $1,640 in income. This amount represents the discount he received on the purchase of the two vehicles. Since the average gross profit percentage of the shop's goods is 12%, Kevin's discount on the vehicles can be considered as part of the shop's profit. Therefore, Kevin needs to include this amount in his income.

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  • 36. 

    Which of the following is false regarding dependent care expenses?

    • A.

      Up to 5000 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

    Correct Answer
    B. Employers may discriminate among employees
    Explanation
    It is false that employers may discriminate among employees when it comes to dependent care expenses. Employers are not allowed to discriminate among employees when it comes to providing benefits or reimbursements for dependent care expenses. Discrimination based on factors such as race, gender, age, or disability is prohibited by law. Therefore, it is incorrect to say that employers may discriminate in this regard.

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  • 37. 

    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.

      1000

    • C.

      3000

    • D.

      6000

    Correct Answer
    B. 1000
    Explanation
    Tasha receives reimbursement from her employer for dependent care expenses up to $8,000. She applied for and received reimbursement of $6,000 for her 10-year-old son. Since the reimbursement exceeds the age-based limit set by the IRS, which is $5,000 for a child under the age of 13, the excess amount of $1,000 is includible in her income. Therefore, the correct answer is 1000.

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  • 38. 

    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.

    Correct Answer
    D. All of these are true statements.
    Explanation
    All of the statements concerning cafeteria plans are true. Cafeteria plans allow employees to choose from a menu of fringe benefits or cash. Most of the menu choices are nontaxable fringe benefits, meaning they are not subject to income tax. However, any cash elected by the employee is treated as taxable compensation and is subject to income tax. Therefore, all of the given statements are true.

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  • 39. 

    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.

      1000

    • C.

      1060

    • D.

      4000

    Correct Answer
    C. 1060
    Explanation
    Tanya must include $1,060 in taxable income. This is because the parking and 401(k) contributions are considered pre-tax benefits and are not included in taxable income. However, the $1,000 cash benefit is considered taxable income and must be included. Therefore, the total taxable income is $1,000.

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  • 40. 

    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

    Correct Answer
    C. Qualified transportation fringe
    Explanation
    A qualified transportation fringe is a fringe benefit that employers can discriminate among employees. This benefit allows employers to provide tax-free transportation benefits to certain employees, such as offering parking or transit passes. Employers have the ability to choose which employees are eligible for this benefit based on their own criteria or policies. Discrimination in this context refers to the employer's discretion in deciding who receives the benefit, rather than any form of unfair treatment or prejudice.

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  • 41. 

    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.

      1500

    • B.

      5000

    • C.

      7143

    • D.

      8333

    Correct Answer
    C. 7143
    Explanation
    Lara's employer can provide health insurance as a benefit, which would be tax-deductible for the employer. This means that Lara can receive the health insurance without paying taxes on it. To calculate the maximum amount of before-tax salary Lara would give up, we need to determine the equivalent after-tax amount of $5,000 for Lara and her employer. Since Lara's marginal tax rate is 30%, the after-tax amount for her would be $5,000 / (1 - 0.30) = $7,143. Therefore, the maximum amount of before-tax salary Lara would give up is $7,143.

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Quiz Review Timeline +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Apr 03, 2014
    Quiz Created by
    Aerazan
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