Chapter $16$ Homework Assignment

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

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Assume that on January $1,$ year $1,$ ABC Incorporated issued $8,350$ stock options with an estimated value of $$18$ per option. Each option entitles the owner to purchase one share of ABC stock for $$33$ 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 $8,350$ stock options were exercised in year $3$ when the ABC stock was valued at $$40$ per share. Identify ABC's year $1,2,$ and $3$ tax deductions and book$-$tax differences $($indicate as favorable or unfavorable and as permanent or temporary$)$ associated with the stock options under the following alternative scenarios:

Required:

o$.$ The stock options are incentive stock options.

b$.$ The stock options are nonqualified stock options.

Complete the following table.

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

$\backslash$table$[[$:$,$Year $1,$Year $2,$Year $3],[\backslash$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$]],\backslash$table$[[$Book$-$Tax$],[$differences$]],\backslash$table$[[$Favorable or$],[$Unfavorable$]],\backslash$table$[[$Temporar$],[$Permane$]]],[$Under ASC $718,,,,,,,,,],[$a$.$ Incentive Stock Options,,,,,,,,,$],[\backslash$table$[[$b$.$ Nonqualified Stock Options$],[($temporary differences$)]],,,,,,,,,],[\backslash$table$[[$b$.$ Nonqualified Stock Options$],[($permanent differences$)]],,,,,,,,,]]$