ABC lnc. Issued 8,350 stock options with an estimated value of $18

jagguarpaw January 17, 2017 0 Comments

Question: ABC lnc. Issued 8,350 stock options with an estimated value of $18

Assume that on January 1. Year 1. ABC Inc. issued 8.350 stock options with an estimated value of S18 per option. Each option entitles the owner to purchase one share of ABC stock for $33 a share (the per share price of ABC stock on January 1, year 1, when the options were granted). The options vest at the end of the day on December 31, year 2. All 8,350 stock options were exercised in year 3 when the ABC stock was valued at $40 per share. Identify ABC’s year 1, 2. And 3 tax deductions and book-tax differences (indicate whether permanent and/or temporary) associated with the stock options under the following alternative scenarios:

  1. The stock options are incentive stock options and ASC 718 does not apply to the options.
  2. The stock options are nonqualified stock options and ASC 718 does not apply to the options.
  3. The stock options are incentive stock options and ASC 718 applies to the options. O. The stock options are nonqualified stock options and ASC 718 applies to the options.

Complete the following table. (Input all amounts as positive values. Leave no answer blank. Enter zero if applicable.)

  Year 1 Year 2 Year 3
  Book-Tax Diff Fav/Unafv Temp/Perm Book-Tax Diff Fav/Unfav Temp/Perm Book-Tax

Diff

Fav/Unfav Temp/Perm
Pre ASC 718                  
Incentive Stock Options                  
Nonqualified stock options                  
Under ASC 718                  
Incentive stock options                  
Nonqualified stock options