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Exam 12: Compensation

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Question 41

Multiple Choice

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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

E) B) and D)
F) None of the above

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Question 42

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Suzanne received 22 ISOs (each option gives her the right to purchase 22 shares of stock for $12 per share)at the time she started working, when the stock price was $13 per share. Three years later, when the share price was $25 per share, she exercised all of her options. If Suzanne holds the shares for two additional years and sells them when the market price is $26, how much gain will Suzanne recognize on the sale and how much tax will she pay, assuming her marginal tax rate is 37 percent?

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Question 43

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Tom recently received 2,110 shares of restricted stock from his employer, Independence Corporation, when the share price was $12 per share. Tom's restricted shares vested three years later when the market price was $16. Tom held the shares for a little more than a year and sold them when the market price was $14. What is the amount of Tom's income or loss on the sale?

Maren received 12 NQOs (each option gives her the right to purchase 7 shares of stock for $10 per share) at the time she started working when the stock price was $8 per share. When the share price was $20 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $23 per share. How much gain will Maren recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 37 percent?

Hazel received 20 NQOs (each option gives her the right to purchase 10 shares of stock for $7 per share)at the time she started working, when the stock price was $14 per share. Now that the share price is $20 per share, she intends to exercise all of her options. How much income will Hazel recognize on the exercise date and how much tax will she pay, assuming her marginal tax rate is 24 percent?

Suzanne received 50 ISOs (each option gives her the right to purchase 50 shares of stock for $11 per share)at the time she started working, when the stock price was $16.75 per share. Three years later, when the share price was $28.00 per share, she exercised all of her options. How much cash will Suzanne need on the exercise date of the stock options?

Hazel received 20 NQOs (each option gives her the right to purchase 10 shares of stock for $7 per share)at the time she started working, when the stock price was $14 per share. Now that the share price is $20 per share, she intends to exercise all of her options. If Hazel holds the shares for two years after exercise and sells them when the market price is $25, how much gain will Hazel recognize on the sale and how much tax will she pay, assuming her marginal tax rate is 37 percent?

A section 83(b)election freezes the value of restricted stock for compensation purposes on the vesting date.

The use of restricted stock is increasing relative to the use of stock options.

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's income?

Employers sometimes pay a "gross-up" to employees to cover taxes associated with taxable fringe benefits they provide.

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?

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?

Up to $10,000 of dependent care expenses can be excluded from an employee's compensation.

Cornhusker Bank reimburses employees for dues to the local banker's association. The reimbursement is includible in the employee's income.

Which of the following is a fringe benefit that allows employers to discriminate among employees when providing it?

The date on which stock options are given to the employee is called the exercise date.

Employers computing taxable income receive a deduction for reasonable salary and wages paid to employees.

One primary purpose of equity compensation is to motivate employees.

How is the bargain element for a stock option calculated?