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Assume that on January 1, year 1, ABC Inc. issued 7,250 stock options with an estimated value of $13 per option. Each option entitles the owner to purchase one share of ABC stock for $25 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 7,250 stock options were exercised in year 3 when the ABC stock was valued at $34 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate as favorable or unfavorable and as permanent or temporary) associated with the stock options under the following alternative scenarios: Required: a. The stock options are incentive stock options. b. The stock options are nonqualified stock options. Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.) Under ASC 718 a. Incentive Stock Options b. Nonqualified Stock Options Book-Tax Diff Year 1 Favorable/ Unfavorable Temporary/ Permanent Unfavorable Permanent Unfavorable Temporary Book-Tax Diff Year 2 Favorable/ Unfavorable Unfavorable Unfavorable Temporary/ Permanent Permanent Temporary Book-Tax Diff Year 3 Favorable/ Unfavorable N/A Unfavorable Favorable Temporary/ Permanent N/A Permanent Temporary

Assume that on January 1, year 1, ABC Inc. issued 7,250 stock options with an estimated value of $13 per option. Each option entitles the owner to purchase one share of ABC stock for $25 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 7,250 stock options were exercised in year 3 when the ABC stock was valued at $34 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate as favorable or unfavorable and as permanent or temporary) associated with the stock options under the following alternative scenarios: Required: a. The stock options are incentive stock options. b. The stock options are nonqualified stock options. Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.) Under ASC 718 a. Incentive Stock Options b. Nonqualified Stock Options Book-Tax Diff Year 1 Favorable/ Unfavorable Temporary/ Permanent Unfavorable Permanent Unfavorable Temporary Book-Tax Diff Year 2 Favorable/ Unfavorable Unfavorable Unfavorable Temporary/ Permanent Permanent Temporary Book-Tax Diff Year 3 Favorable/ Unfavorable N/A Unfavorable Favorable Temporary/ Permanent N/A Permanent Temporary

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
Problem 3C
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Assume that on January 1, year 1, ABC Inc. issued 7,250 stock options with an estimated value of $13 per option. Each option entitles the owner to purchase one share of ABC stock for $25 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 7,250 stock options were exercised in year 3 when the ABC stock was valued at $34 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate as favorable or unfavorable and as permanent or temporary) associated with the stock options under the following alternative scenarios: Required: a. The stock options are incentive stock options. b. The stock options are nonqualified stock options. Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.) Under ASC 718 Incentive Stock Options b. Nonqualified Stock Options a. Book-Tax Diff Year 1 Favorable/ Unfavorable Temporary/ Permanent Unfavorable Permanent Unfavorable Temporary IMG_2910.heic Book-Tax Diff Year 2 Favorable/ Unfavorable Unfavorable Unfavorable Temporary/ Book-Tax Permanent Diff Permanent Temporary Year 3 Favorable/ Unfavorable N/A Unfavorable Favorable Temporary/ Permanent N/A Permanent Temporary
Transcribed Image Text:Assume that on January 1, year 1, ABC Inc. issued 7,250 stock options with an estimated value of $13 per option. Each option entitles the owner to purchase one share of ABC stock for $25 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 7,250 stock options were exercised in year 3 when the ABC stock was valued at $34 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate as favorable or unfavorable and as permanent or temporary) associated with the stock options under the following alternative scenarios: Required: a. The stock options are incentive stock options. b. The stock options are nonqualified stock options. Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.) Under ASC 718 Incentive Stock Options b. Nonqualified Stock Options a. Book-Tax Diff Year 1 Favorable/ Unfavorable Temporary/ Permanent Unfavorable Permanent Unfavorable Temporary IMG_2910.heic Book-Tax Diff Year 2 Favorable/ Unfavorable Unfavorable Unfavorable Temporary/ Book-Tax Permanent Diff Permanent Temporary Year 3 Favorable/ Unfavorable N/A Unfavorable Favorable Temporary/ Permanent N/A Permanent Temporary
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