Refer to the facts in the preceding problem. Five years after Gogo granted the option to Mrs. Mill, she exercised it on a day when Gogo stock was selling for $10.31 per share.

a. How much income must Mrs. Mill recognize in the year of exercise?

b. What is Gogo's tax deduction in the year of exercise?

c. What is the effect of the exercise on Gogo's book income and deferred taxes?

Assume the taxable year is 2018.

Data from Prob. 14

This year, Gogo Inc. granted a non qualified stock option to Mrs. Mill to buy 10,000 shares of Gogo stock for $8 per share for five years. At date of grant, Gogo stock was selling on a regional securities market for $7.87 per share. Gogo recorded $26,700 compensation expense for the estimated value of the option.