90.2K

Verified Solution

Link Copied!

blem $16-40($LO $16-2)($Algo$)$

ume that on January $1,$ year $1,$ ABC Incorporated issued $7,650$ stock options with an estimated value of $$18$ per option. Each option les the owner to purchase one share of ABC stock for $$27$ a share $($the per share price of ABC stock on January $1,$ year $1,$ when the ons were granted$).$ The options vest at the end of the day on December $31,$ year $2.$ All $7,650$ stock options were exercised in year $3$ in the ABC stock was valued at $$33$ per share. Identify ABC $\text{'}$s year $1,2,$ and $3$ tax deductions and book$-$tax differences $($indicate as rable or unfavorable and as permanent or temporary$)$ associated with the stock options under the following alternative scenarios:

uired:

he stock options are incentive stock options.

he stock options are nonqualified stock options.

omplete the following table.

lote: For all requirements, leave no answer blank. Enter zero if applicable and select "Not Applicable" if no effect.

$\backslash$table$[[$Under ASC $718,$Year $1,,$Year $2,\backslash$table$[[$Book$-$Tax$],[$differences$]],\backslash$table$[[$Ye$],[$Favorab$],[$Unfavor$]]],[\backslash$table$[[$Book$-$Tax$],[$differences$]],\backslash$table$[[$Favorable or$],[$Unfavorable$]],\backslash$table$[[$Temporary or$],[$Permanent$]],\backslash$table$[[$Book$-$Tax$],[$differences$]],\backslash$table$[[$Favorable or$],[$Unfavorable$]],\backslash$table$[[$Temporary or$],[$Permanent$]]],[,,,,,,,],[$a$.$ Incentive Stock Options,,Unfavorable,,,Unfavorable,,,Not Applic$],[\backslash$table$[[$b$.$ Nonqualified Stock Options$],[($temporary differences$)]],,$Unfavorable,,,Unfavorable,Temporary,,Favorable$],[\backslash$table$[[$b$.$ Nonqualified Stock Options$],[$permanent differences$)]],$mim,Not Applicable,Not Applicable,,Not Applicable,Not Applicable,,$]]$

Answer & Explanation Solved by verified expert

See Answer