ABC Corporation, a publicly traded entity based in the US, has engaged your firm to prepare its
Question:
ABC Corporation, a publicly traded entity based in the US, has engaged your firm to prepare its FYE 12/31/2019 provision, including the calculation of the income tax effects of stock based compensation. After an initial meeting with the stock administrator and ABC Corporation's Director of Tax, you have identified the relevant considerations for computing the income tax effects for stock based compensation.
a) Tax Benefit Reconciliation Reports ("TBR") from Equity Edge
From speaking to the stock administrator, ABC Corporation issues both non-qualified stock options ("NQSO") and restricted stock units ("RSU"). From the walkthrough of the tax benefit reconciliation reports with the client team, it appears that the tax rate has not been defined (i.e. set at 100%). The Director of Tax has also confirmed that none of its employees have elected Section 83(b) for its RSU's, and the applicable tax rate for US purposes is 25%.
b) ABC Corporation issues stock-based compensation to its employees in its only foreign subsidiary, ABC UK. Per discussion with the Director of Tax, the Company does not tender its RSU's under a net settlement process, where a company would deduct from the total number of shares to be delivered to the employee a number of shares with a value equal to the employee’s tax liability and remits the amount withheld to the tax authorities from its own resources.
While you wait for more files to complete the computation of the YE provision, your manager suggests that you work on computing the journal entries for ABC UK for her review. Based on the TBR in the next tab, you compute the journal entries as follows (only asking for UK calculation for this question as an example):
UK | Applicable Tax Rate | 19% | |
Tax Payable - debit / (credit) | DTA - debit / (credit) | I/S Impact - debit / (credit) | |
RSU | $ - | $ - | $ - |
UK TBR tab:
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118644942
6th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine