Question
Assume that on January 1, Year 1, XYZ Corp. issued 1,000 nonqualified stock options with an estimated value of $4.40 per option. Each option entitles
Assume that on January 1, Year 1, XYZ Corp. issued 1,000 nonqualified stock options with an estimated value of $4.40 per option. Each option entitles the owner to purchase one share of XYZ stock for $14 a share . The options vest 25% a year (on December 31) for four years beginning with year 1. All 500 stock options that had vested to that point were excercised in year 3 when the XYZ stock stock was valued at $19 per share. No other options were excercised in year 3 or year 4. What is the book-tax difference associated with the stock options in Year One? Enter favorable as a positive and unfavorable as negative.
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