ACC 377 Lecture Notes - Lecture 4: Contract, Gross Income, Payment

Please build the answer in your own words based on flowing textfrom studding book (provide the example):

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Group Term Life Insurance Plans.

Many employers offer group term life insurance as part of theiremployee benefit package. Life insurance coverage is normallycalculated as a multiple of the employee’s annual salary, roundedup to the nearest thousand ($1,000.00). The premiums paid by theemployer for coverage under a group term life insurance policy areconsidered a taxable benefit to the employee. If the employershares the premium cost with the employee, for example, theemployer pays half and the employee pays half, then the taxablebenefit would only be the portion of the premiums the employerpays, or 50%. Group term life insurance taxable benefitcalculations are based on the premium rates and sales taxes theemployer pays and the amount of coverage provided. Premium ratesare expressed per $1,000.00 of coverage on a monthly basis. Thetaxable benefit must be calculated on a pay period basis forinclusion in the employee’s taxable income.

The following formula calculates the employee’s monthly taxablebenefit:

Coverage amount = Annual salary x coverage multiplier Roundcoverage amount up to nearest $1,000.00 Monthly taxable benefit =Coverage amount x premium rate $1,000.00 To ensure that the benefitis included in the employee’s income as it is earned or enjoyed,the monthly benefit must be annualized and then prorated on a payperiod basis, as follows: Pay period taxable benefit = Monthlytaxable benefit x 12 Pay period frequency

"Example: Rhonda Gold’s life insurance coverage, through heremployer’s group plan is two times her annual salary of $30,300.00.Her employer pays the insurer 100% of the cost of her lifeinsurance coverage at a premium rate of $1.00 per $1,000.00 ofcoverage per month. Rhonda is paid on a weekly basis; her taxablebenefit is calculated as follows: Coverage amount = Annual salary xcoverage multiplier Round coverage amount up to nearest $1,000.00 =($30,300 x 2) = $60,600.00 = $61,000.00 (rounded) Monthly taxablebenefit = coverage amount x premium rate $1,000.00 = $61,000 x$1.00 $1,000.00 = $61.00"

Group Sickness and Accident Insurance Plans.

These are group plans that provide employees with income for aperiod of time, should the employee be away from work for reasonsof sickness or accident. A group plan is generally one thatprovides coverage to a class or association of employees. There canalso be multiple plans for a group of employees, for example, oneplan for clerical staff and one for management staff. The types ofsickness and accident insurance plans considered in this categoryinclude:

? short term disability plans (wage loss replacement, weeklyindemnity)

? long term disability plans

? accident insurance plans (accidental death anddismemberment)

If an employer pays the premiums for group short-term orlong-term disability plans there is no taxable benefit implicationfor the employee, however employer-paid accidental death anddismemberment (AD&D) premiums are considered a non-cash taxablebenefit. As a result, employer-paid AD&D premiums, plus the 8%RST (Manitoba and Ontario), the 9% tax on insurance premiums(Québec) and the 6% PST (Saskatchewan) as applicable, areconsidered pensionable for C/QPP contributions and taxable forfederal and provincial income taxes. Employer-paid premiums for anon-group plan are considered a non-cash taxable benefit in alljurisdictions. A non-group plan is one that generally does notcover a group or association of employees. For example, if theorganization pays the premiums for a long-term disability plan foronly the president of the organization, this would be considered anon-cash taxable benefit to the president. When the benefit istaxable it is also pensionable for C/QPP contributions; however, asit is a non-cash benefit, it is not insurable, and no EI or QPIPpremiums are deducted. GST and HST are not included in the value ofthis type of benefit, but the provinces of Manitoba, Ontario,Québec and Saskatchewan assess sales tax on AD&D insurancepremiums.

Question : Your organization, located in Manitoba,will be enhancing the group benefits plan offered to employees intwo months by adding accidental death and dismemberment (AD&D)coverage and vision care coverage. The organization will pay 50% ofthe cost of the AD&D premiums and 50% of the cost of the visioncare premiums, with the employees paying the other 50% of eachpremium. The Manager of Finance, Laura Bruce, has requested thatyou, as the Payroll Supervisor, prepare a communication for theemployees, explaining how these new benefits will impact their netpay.

(200 – 350 words)

5. Anne purchased an annuity from an insurance company that promised to pay her $13,000 per year for the next ten years. Anne paid $102,050 for the annuity, and in exchange she will receive $130,000 over the term of the annuity.

a. How much of the first $13,000 payment should Anne include in gross income? (Do not round intermediate calculations.)

Amount to be included?

6. George and Weezy received $30,100 of Social Security benefits this year ($11,500 for George; $18,600 for Weezy). They also received $5,050 of interest from jointly owned City of Ranburne Bonds and dividend income.

What amount of the Social Security benefits must George and Weezy include in their gross income under the following independent situations? (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

a. George and Weezy file married joint and receive $9,250 of dividend income from stocks owned by George.

Amount to be included?

7. Terry was ill for three months and missed work during this period. During his illness, Terry received $7,250 in sick pay from a disability insurance policy.

What amounts are included in Terry’s gross income under the following independent circumstances? (Leave no answer blank. Enter zero if applicable.)

a. Terry has disability insurance provided by his employer as a nontaxable fringe benefit. Terry’s employer paid $5,350 in disability premiums for Terry this year.

Amount included?

8. This year, Janelle received $190,000 in life insurance proceeds. Under the following scenarios, how much of the $190,000 is taxable? (Leave no answer blank. Enter zero if applicable.)

a. Janelle received the proceeds upon the death of her father, Julio.

Taxable amount?

9. This year, Leron and Sheena sold their home for $1,150,000 after all selling costs. Under the following scenarios, how much taxable gain does the home sale generate for Leron and Sheena? (Leave no answer blank. Enter zero if applicable.)

a. Leron and Sheena bought the home three years ago for $200,000 and lived in the home until it sold.

Taxable gain: ?

10. Dontae’s employer has offered him the following employment package.

What is Dontae’s gross income from his employment?

Gross income?

Stone Corporation has 25 employees and incurs total wages andsalaries expense of $1,000,000 per year. The following table showsvarious payroll amounts as a percentage of this annual wage andsalaries expense:

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Required information

$900,000.

$880,000.

$583,500.

$823,500.

Q..Sanford Corporation borrowed $240,000 by issuing a 17%,six-month note payable, all due at the maturity date. After onemonth, the company's total liability for this loan amounts to:

$240,000.

$241,700.

$243,400.

$246,800.

Q1. On September 1, 2015, Able Company purchased a building fromRegal Corporation by paying $280,000 cash and issuing a one-yearnote payable for the balance of the purchase price. Interest on thenote is stated at an annual rate of 8% and is paid at maturity. Inits December 31, 2015, balance sheet, Able correctly presented thenote and interest payable as follows:

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Required information

$20,400.

$6,800.

$13,600.

$11,900.

2.The interest coverage ratio is computed by dividing: 

Net income by interest expense.

Operating income by interest expense. 

Interest expense by net income. 

Interest expense by operating income.