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Chap 19 part 1 Stock based compensation At the beginning of its first year of operations, the Barker Co. grants non qualified options on 5,000

Chap 19 part 1 Stock based compensation

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 balance of the deferred tax asset at the end of the first year of the vesting period?

2. 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 ?

3. 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?

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