Assume that on January 1, year 1, ABC Incorporated issued 9,000 stock options with an estimated value of $9 per option. Each option entitles the owner to purchase one share of ABC stock for $34 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 9,000 stock options were exercised in year 3 when the ABC stock was valued at $41 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate as favorable or unfavorable and as permanent or temporary) associated with the stock options under the following alternative scenarios: Required: ook a. The stock options are incentive stock options.. b. The stock options are nonqualified stock options. int Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" If no effect.) rences Year 1 Year 2 Favorable! Temporary Book-Tax Book-Tax differences Favorable! Unfavorable Tem Per Unfavorable Permanent differences Under ASC 718 Permane a. Incentive Stock Options $ wifed fireale Malion Tamna 54,000 Unfavorable Permanent Unfavorable Putnshle Under ASC 718 a. Incentive Stock Options b. Nonqualified Stock Options (temporary differences) b. Nonqualified Stock Options (permanent differences) Book-Tax differences $ 54,000 Year 1 Favorable/ Unfavorable Unfavorable Unfavorable N/A Temporary/ Permanent Permanent Ten prary N/A Book-Tax differences Return to question Answer is not complete Year 2 Ton Favorable/ Unfavorable Pe Unfavorable Porm Unfavorable Temp N/A N/A ax Cos Answer is not complete. Year 2 Favorable/ Unfavorable Unfavorable Unfavorable N/A Temporary/ Permanent Permanent Temporary N/A completion. Book-Tax differences Year 3 Favorable/ Unfavorable N/A Unfavorable Favorable Temporary/ Permanent # N/A Permanent Temporary Assume that on January 1, year 1, ABC Incorporated issued 9,000 stock options with an estimated value of $9 per option. Each option entitles the owner to purchase one share of ABC stock for $34 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 9,000 stock options were exercised in year 3 when the ABC stock was valued at $41 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicate as favorable or unfavorable and as permanent or temporary) associated with the stock options under the following alternative scenarios: Required: a. The stock options are incentive stock options. b. The stock options are nonqualified stock options. ces Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.) Year 2 Year 1 Tem Favorable! Book-Tax Temporary! Book-Tax differences Favorable! Unfavorable Pen Unfavorable differences Permanent Under ASC 718 Permane a. Incentive Stock Options $ 54,000 Unfavorable & Homme Pallas Unfavorable Return to question Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.) Answer is not complete Year 2 Year 1 Favorable/ Unfavorable Temporary! Book-Tax differences Ten Favorable/ Unfavorable Permanent Pe Under ASC 718 $ 54,000 Unfavorable Unfavorable Permi a. Incentive Stock Options b. Nonqualified Stock Options (temporary differences) Unfavorable Unfavorable Tempi b. Nonqualified Stock Options (permanent differences) N/A N/A N/A 1 of 15 + Book-Tax differences Answer is not complete. Year 2 Favorable/ Unfavorable Unfavorable Unfavorable N/A Temporary/ Permanent Permanent Temporary N/A Book-Tax differences Year 3 Favorable/ Unfavorable N/A Unfavorable Favorable Temporary/ Permanent N/A Permanent Temporary
