TBCh14F - CHAPTER 14 Executive Compensation and Employee...

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C H A P T E R 1 4 Executive Compensation and Employee Benefits T RUE -F ALSE Q UESTIONS 1. Whether a public company may make loans to directors is strictly a matter of state law. ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 2. Many types of employee benefit plans are regulated by the federal Employee Retirement Income Security Act. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 3. The directors of privately held corporations are held to the same standards that are applied to the directors of public corporations. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 4. An employee who receives stock in connection with a restricted stock plan is taxed at ordinary income tax rates to the extent that the stock value when received exceeds the amount paid. ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 5. Congress has used federal tax laws to provide incentives to encourage certain types of executive compensation such as options. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 6. Shareholder proposals regarding executive compensation are disallowed by the Securities and Exchange Commission. ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 7. Executive compensation is generally set by a group of the company’s board of directors known as the audit committee. 60
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MANAGERS AND THE LEGAL ENVIRONMENT ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 8. For growth-oriented smaller companies, stock options are an ineffective way to preserve cash. ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 9. Stock options are an approved and well established mechanism for existing owners to sell shares. ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 10. Incentive stock options are frequently used by publicly held companies whereas nonqualified stock options are more typically used by privately held companies. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 11. By federal law, a stock option must carry a guarantee that the optionee will not lose any money and can always redeem the stock at the price at which it was purchased. ANSWER: False SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 12. When a nonqualified stock option is involved, the spread is taxable to the optionee as ordinary income whether or not the optionee actually sells the shares. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPA Legal 13. Employers usually use employee stock purchase plan options as a way for rank-and-file employees to share in the growth of the company by purchasing stock. ANSWER: True SKILL LEVEL: AACSB Analytic OBJECTIVE: AICPALegal 14. Federal law prohibits employers from allowing payroll deductions as a way for employees to purchase stock under an employee stock purchase plan.
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This note was uploaded on 10/18/2011 for the course BUSS 240 taught by Professor Na during the Fall '10 term at Strayer.

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TBCh14F - CHAPTER 14 Executive Compensation and Employee...

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