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

Question: 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

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.

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