Question
At the beginning of its first year of operations, the Barker Co. grants non qualified options on 5,000 of its $1 par common stock. The
At the beginning of its first year of operations, the Barker Co. grants non qualified options on 5,000 of its $1 par common stock. The exercise price of each option is $30. The fair market value of each option on the grant date is $6 and the options vest after 4 years. The fair market value of each common share on the grant date is $29. The tax rate is 20% in all years.
1. How much is the book value of common stock issued if all the options are exercised when the fair market value of each common share is $40 ?
Answers, $5,000: $200,000, $55,000, $195,000 and all other regarding this question on chegg are WRONG. I need to figure out how correctly solve this problem. Please help.
2. Barker's pre-tax income is $300,000 in the period when the options are exercised. The fair market value of each share on the exercise date is $40. How much is taxable income in that period?
Answer: $272,500 is WRONG
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