Heather Is a Full-Time Employee of the Drake Company and Participates

question 30

Multiple Choice

Heather is a full-time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees. Which of the following is correct?

• A) Heather reduced her salary by $1,200, actually spent $1,500, and received only $1,200 as reimbursement for her medical expenses. Heather's gross income will be reduced by $1,500.
• B) Heather reduced her salary by $1,200, and received only $900 as reimbursement for her actual medical expenses. She is not refunded the $300 remaining balance, but her gross income is reduced by $1,200.
• C) Heather reduced her salary by $1,200, and received only $800 as reimbursement for her medical expenses. She is not refunded the $400. Her gross income is reduced by $800.
• D) Heather reduced her salary by $1,200, and received only $900 as reimbursement for her medical expenses. She forfeits the $300. Her gross income is reduced by $300.
• E) None of these.

---

Definitions:

Break-Even Level

The point at which total costs and total revenue are equal, resulting in no net loss or gain from business activities.

EBIT

Stands for Earnings Before Interest and Taxes, an indicator of a company's profitability excluding interest and tax expenses.

Bankruptcy Proceedings

A legal process through which individuals or businesses unable to meet their financial obligations can seek relief from some or all of their debts.