Assume that on January 1, year 1, ABC Inc. issued 9,400 stock options with an estimated value of $13 per option. Each option entitles the owner to purchase one share of ABC stock for $25 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 9,400 stock options were exercised in year 3 when the ABC stock was valued at $35 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate whether permanent and/or temporary) associated with the stock options under the following alternative scenarios: Required a. The stock options are incentive stock options and ASC 718 does not apply to the options b. The stock options are nonqualified stock options and ASC 718 does not apply to the options c. The stock options are incentive stock options and ASC 718 applies to the options. d. The stock options are nonqualified stock options and ASC 718 applies to the options. Complete the following table. (Input all amounts as positive values. Leave no answer blank. Enter zero if applicable.) Year 1 Book-Tax Fav/Unfav Year 3 Book-Tax Fav/Unfav Temp/Perm Year 2 Book-Tax FaviUnfav Temp/Perm Diff Temp/Perm Diff Diff Pre ASC 718 Incentive Stock Options Nonqualified Stock Options NIA NIA $ 0 N/A N/A N/A 94,000 FavorablePermanent Under ASC 718 Incentive Stock Options Nonqualified Stock Options Unfavorable Permanent Unfavorable Permanent 01 N/A N/A Unfavorable Temporany Unfavorable Temporary Favorable Temporary Assume that on January 1, year 1, ABC Inc. issued 9,400 stock options with an estimated value of $13 per option. Each option entitles the owner to purchase one share of ABC stock for $25 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 9,400 stock options were exercised in year 3 when the ABC stock was valued at $35 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate whether permanent and/or temporary) associated with the stock options under the following alternative scenarios: Required a. The stock options are incentive stock options and ASC 718 does not apply to the options b. The stock options are nonqualified stock options and ASC 718 does not apply to the options c. The stock options are incentive stock options and ASC 718 applies to the options. d. The stock options are nonqualified stock options and ASC 718 applies to the options. Complete the following table. (Input all amounts as positive values. Leave no answer blank. Enter zero if applicable.) Year 1 Book-Tax Fav/Unfav Year 3 Book-Tax Fav/Unfav Temp/Perm Year 2 Book-Tax FaviUnfav Temp/Perm Diff Temp/Perm Diff Diff Pre ASC 718 Incentive Stock Options Nonqualified Stock Options NIA NIA $ 0 N/A N/A N/A 94,000 FavorablePermanent Under ASC 718 Incentive Stock Options Nonqualified Stock Options Unfavorable Permanent Unfavorable Permanent 01 N/A N/A Unfavorable Temporany Unfavorable Temporary Favorable Temporary
