Assume that on January 1, year 1, ABC Inc. issued 5,000 stock options with an estimated...

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Assume that on January 1, year 1, ABC Inc. issued 5,000 stockoptions with an estimated value of $10 per option. Each optionentitles the owner to purchase one share of ABC stock for $25 ashare (the per share price of ABC stock on January 1, year 1, whenthe options were granted). The options vest at the end of the dayon December 31, year 2. All 5,000 stock options were exercised inyear 3 when the ABC stock was valued at $31 per share. IdentifyABC’s year 1, 2, and 3 tax deductions and book–tax differences(indicate whether permanent and/or temporary) associated with thestock options under the following alternative scenarios:
a) The stock options are incentive stock options and ASC 718applies to the options.
b) The stock options are nonqualified stock options and ASC 718applies to the options.

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a In case of incentive stock options no deductions are allowed to ABC Inc for tax purpose However under ASC 718 the intial expenses of stock options are allowed as deduction for book purpose In the said case the estimated value of per option is 10 In year 1 since options were not vested hence nothing will be See Answer

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Assume that on January 1, year 1, ABC Inc. issued 5,000 stockoptions with an estimated value of $10 per option. Each optionentitles the owner to purchase one share of ABC stock for $25 ashare (the per share price of ABC stock on January 1, year 1, whenthe options were granted). The options vest at the end of the dayon December 31, year 2. All 5,000 stock options were exercised inyear 3 when the ABC stock was valued at $31 per share. IdentifyABC’s year 1, 2, and 3 tax deductions and book–tax differences(indicate whether permanent and/or temporary) associated with thestock options under the following alternative scenarios:a) The stock options are incentive stock options and ASC 718applies to the options.b) The stock options are nonqualified stock options and ASC 718applies to the options.