Chapter 12 Mathematics Quiz

41 Questions | Total Attempts: 113

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Chapter 12 Mathematics 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

  • 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

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