Paint Supply, Inc. offers a cafeteria plan. All of its employees work full time. Employees are permitted to select a combination of benefits, but the total value received by the employee must be $6,500 per year or less.

Benefits Offered:

1) Group medical and hospitalization insurance from employees only, $3,600 per year

2) Group medical and hospitalization insurance from employees spouse and dependents, $1,200 additional a year.

3) Child-care payments, actual costs not to exceed $5,000

4) Cash required to bring the total of benefits to $6,500

5) Universal Variable Life Insurance $1,000.

In addition to the benefit package, Paint Supply, Inc. provides a 25% discount to all nonofficer employees. The officers are allowed a 30% discount on company products.

Paint Supplys gross profit percent is 35%.

14) Which of the following statements is true regarding discounts given to Paint Supplys employees?

a)An officer who takes 30% discount must include the extra 5% (305-25%) in his/her gross income.

b) Any discounts taken by any employee is includible in the employees gross income because the plan is discriminatory.

c)All discounts taken by officers are includible in their gross income because the plan is discriminatory.

d)None of the discounts taken by any employee are includible in their gross income because the discount, in all cases, is less than the companys gross profit percentage.

15) Which of the following statement is true?

1. Joe, a sales manager for Paint Supply, Inc. chooses to receive $6,500 cash because his wifes employer provides medical benefits for him. Joe has $2,900 of taxable income ($6,500-$3,600).

2. Eva who works in the companys accounting department, can choose benefits 1, 2, 5 and $700 in cash. She must include $700 in taxable income.

3. Roger, a customer service liaison, choses benefits 1 and 2 and $1,700 in child care. He must include $1,700 in gross income

4. Rebecca, a company vice president, chooses benefits 1 and 2 and $1,700 cash. She must include $1,7000 in taxable income

16) William is an officer of Paint Supply. He has worked for the company for 13 years. During a recent home remodel, George took advantage of the company discounts buying products that would retail at $1,800. For this year, how much, if any, does William have to include in his gross income as a result of this transaction?

1. $0

2. $450

3. $1,800

4. $540

17) What is the maximum number of employees Paint Supply, Inc can have and not be subject to the COBRA rules?

1. 10

2. 15

3. 19

4. 20

18) After reading research on employee wellness, Paint Supplys owners decided to offer each of its employees membership to the local YMCA at no cost to them. Currently, the YMCA cost $60 per month. How much, if any, must employees of Paint Supply, Inc, include in their yearly gross income related to this fringe benefit?

1. $720

2. $60

3. $600

4. $0