1. The following data was obtained from the 2018 Form 10-K of Horngren Corp.
   
   Stock-Based Compensation:
   Options Outstanding, December 31, 2017 20,000,000
   The weighted average exercise price, Dec. 31, 2017, $40
   Options Outstanding, December 31, 2018 21,000,000
   The weighted average exercise price, Dec. 31, 2018, $50
   
   Market closing price, December 31, 2017, $50
   Market closing price, December 31, 2018, $60
   Average market price - 2018 $55
   
   All option outstanding is exercisable.
   
   Horngren reported that its marginal tax rate is 20% and the tax benefit of options exercised in 2018 was $12 million.
   
   a. Explain whether the adjustment for stock-based compensation (SBC) is an operating or a financial item.
   
   b. Calculate the stock option overhang for December 31, 2017, and 2018.
   
   c. What is the income statement impact (NOPAT or FEAT) for the 2018 adjustment for stock-based compensation (SBC).
   
   d. Calculate the (unreported) impact on common stock equity (CSE) related to the 2018 adjustment for stock-based compensation.

Answer rating: 100% (QA)

a The adjustment for stockbased compensation is a financial item b The stock option overhang for Dec... View the full answer