Robo Corporation reported pretax book income of $48,000,000. Our audit team identified the following accounts in the trial balance that may have tax implications. For each item, indicate the amount of the book-tax adjustment, and whether it is permanent or temporary.

1.. The company issued non-qualified stock options to its top executives. It expensed $3,000,000 last year and $3,000,000 this year. Last year, executives exercised 400,000 options, purchasing the company’s stock from the company for $52 per share. The stock was trading at an average of $62 per share when the executives exercised the options. This year, the stock price declined to a level well below the $52 strike price of the remaining 200,000 options and they expired unused.

2. The company had a balance in the Reserve for Legal Liability of $10,000,000 at the end of the year. The beginning of the year balance in this account was $6,000,000.

3. The company paid $4,000,000 more in interest than is allowed under Code Sec. 163(j)

4. The company sold real estate this year, reporting a $6,600,000 gain for book. The real estate originally cost $18,000,000, and accumulated book depreciation was $500,000. Accumulated tax depreciation was $1,900,000

Answer rating: 100% (QA)

1 Book tax adjustment 3 000 000 P ermanent The book tax adju... View the full answer