Assume that on January 1, year 1, ABC Inc. issued 8,800 stock options with an estimated...

 

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Assume that on January 1, year 1, ABC Inc. issued 8,800 stock options with an estimated value of $15 per option. Each option entitles 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 options were granted). The options vest at the end of the day on December 31, year 2. All 8,800 stock options were exercised in year 3 when the ABC stock was valued at $33 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate whether permanent and/or temporary) associated with the stock options under the following alternative scenarios: Required: a. The stock options are incentive stock options. b. The stock options are nonqualified stock options. Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.) X Answer is not complete. Year 1 Year 2 Ye Вook- Temporary/ Permanent Temporary/ Permanent Favorablel Book- Favorablel Вook- Favora Tax Diff Unfavorable Tax Diff Unfavorable Tax Diff Unfavo Under ASC 718 Incentive Stock Options 2$ 0 XN/A X N/A 0 X N/A X N/A N/A а. Nonqualified Stock Options b. 2$ 0 X N/A N/A X $ 52,800 X Favorable Permanent Favorab %24 enarios: ble and select "N/A" if no effect.) not complete. Year 3 Temporary/ Permanent Вook- Favorablel Temp/Perm Tax Diff Unfavorable N/A N/A N/A Permanent 0 X Favorable Permanent Assume that on January 1, year 1, ABC Inc. issued 8,800 stock options with an estimated value of $15 per option. Each option entitles 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 options were granted). The options vest at the end of the day on December 31, year 2. All 8,800 stock options were exercised in year 3 when the ABC stock was valued at $33 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate whether permanent and/or temporary) associated with the stock options under the following alternative scenarios: Required: a. The stock options are incentive stock options. b. The stock options are nonqualified stock options. Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.) X Answer is not complete. Year 1 Year 2 Ye Вook- Temporary/ Permanent Temporary/ Permanent Favorablel Book- Favorablel Вook- Favora Tax Diff Unfavorable Tax Diff Unfavorable Tax Diff Unfavo Under ASC 718 Incentive Stock Options 2$ 0 XN/A X N/A 0 X N/A X N/A N/A а. Nonqualified Stock Options b. 2$ 0 X N/A N/A X $ 52,800 X Favorable Permanent Favorab %24 enarios: ble and select "N/A" if no effect.) not complete. Year 3 Temporary/ Permanent Вook- Favorablel Temp/Perm Tax Diff Unfavorable N/A N/A N/A Permanent 0 X Favorable Permanent

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Solution a Unless ASC 718 applies ABC will not deduct any compens... View the full answer