$1,137,500 increase to deferred tax asset, $1,137,500 decrease to tax expense
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Bay’s footnote regarding employee stock compensation details the grant of 2 million options during the year, the fair-value of which was computed as $6.50.
If the options have, on average, a four-year vesting schedule and the company faces a 35% tax rate on income, what affect would this option grant have on Bay’s accounts for the year?
If the options have, on average, a four-year vesting schedule and the company faces a 35% tax rate on income, what affect would this option grant have on Bay’s accounts for the year?
Select one:
a. $4,550,000 decrease to deferred tax asset , $4,550,000 increase to tax expense
b. $1,137,500 decrease to deferred tax asset, $1,137,500 increase to tax expense
c. Indeterminable since the number of options exercised is unknown.
d. $4,550,000 increase to deferred tax asset, $4,550,000 decrease to tax expense
e. $1,137,500 increase to deferred tax asset, $1,137,500 decrease to tax expense
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