Accounting for stock options. Lowe Corporation grants stock options to its managerial employees on December 31 of each year. Employees may acquire one share of common stock with each stock option. Lowe Corporation sets the exercise price equal to the market price of its common stock on the date of the grant. Employees must continue working for two years after the date of the grant before the options vest and employees can exercise them. Exhibit 12.10 presents information for the stock options granted by Lowe Corporation on December 31 of each year.

a. Assume that Lowe Corporation accounts for its stock options using the APB Opinion 25 method. Calculate the effect of the stock options on net income before income taxes for Years 1 to 5 .

b. Repeat part a assuming that Lowe Corporation accounts for its stock options using the market value method of FASB Statement No. 123.

c. Compute the cumulative difference in income before taxes as of December 31, Year 6 under the two accounting methods.

d. Compute the cumulative difference in shareholders' equity as of December 31, Year 6 under the two accounting methods. Ignore income tax effects.