Assume that on January 1, year 1, ABC Incorporated issued 5,000 stock options with an estimated value of $10 per option. Each optionentitles 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 theoptions were granted). The options vest at the end of the day on December 31, year 2. All 5,000 stock options were exercised in year3 when the ABC stock was valued at $31 per share. Identify ABC's year 1, 2, and 3 tax deductions and book-tax differences (indicateas favorable or unfavorable and as permanent or temporary) associated with the stock options under the following alternativescenarios:Required:a. The stock options are incentive stock options.b. The stock options are nonqualified stock options.Complete the following table.Note: For all requirements, leave no answer blank. Enter zero if applicable and select "Not Applicable" if no effect.Under ASC 718a. Incentive Stock Optionsb. Nonqualified Stock Options(temporary differences)b. Nonqualified Stock Options(permanent differences)Book-TaxdifferencesYear 1Favorable orUnfavorableTemporary orPermanentBook-TaxdifferencesYear 2Favorable orUnfavorableTemporary orPermanentBook-TaxdifferencesYear 3Favorable orUnfavorableTemporary orPermanent

Incentive stock options: An incentive stock option (ISO) is a business incentive that allows workers…

Answered: Assume that on January 1, year 1, ABC…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Assume that on January 1, year 1, XYZ Corporation issued 1,000 nonqualified stock options with an estimated value of $4 per option. Each option entitles the owner to purchase one share of XYZ stock for $14 a share (the per share price of XYZ stock on January 1, year 1, when the options were granted). The options vest 25 percent a year (on December 31) for four years (beginning with year 1). All 500 stock options that had vested to that point were exercised in year 3 when the XYZ stock was valued at $20 per share. No other options were exercised in year 3 or year 4. a. Identify XYZ’s year 1, 2, 3, and 4 tax deductions and book–tax difference (identify as permanent and/or temporary) associated with the stock options. b. In year 1, DEF recognized a loss of $15,000 on land that it had held for investment. In year 1, it also recognized a $30,000 gain on equipment it had purchased a few years ago. The equipment sold for $50,000 and had an adjusted basis of $20,000. DEF had deducted…
Assume that on January 1, year 1, ABC Inc. issued 7,250 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 7,250 stock options were exercised in year 3 when the ABC stock was valued at $34 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. Complete the following table. (For all requirements, leave no answer blank. Enter zero if applicable and select "N/A" if no effect.) Under ASC 718 Incentive Stock Options b. Nonqualified Stock Options a. Book-Tax Diff Year 1…
On January 1 of Year 1, Holiday Inc. offered a stock option incentive plan to a top executive. The plan provided the executive 300 stock options for Holiday Inc. $1 par value, common stock at an option price of $15 per share through the expiration date of January 1 of Year 7. The fair value of the options based upon an option-pricing model on January 1 of Year 1, is $9,000. The market price at year-end of Holiday Inc. stock is $15 per share on January 1 of Year 1, and $18 on December 31 of Year 1. The requisite service period is 3 years. The options were not exercised due to the stock price remaining below $15 per share after the vesting period. Record the entry on January 1 of Year 7 for the expiration of the stock options. Note: If a line in a journal entry isn't required for the transaction, select "N/A—debit" and "N/A—credit" as the account names and leave the Dr. and Cr. answers blank (zero).
Assume that on January 1, year 1, XYZ Corporation issued 1,000 nonqualified stock options with an estimated value of $4 per option. Each option entitles the owner to purchase one share of XYZ stock for $14 a share (the per share price of XYZ stock on January 1, year 1, when the options were granted). The options vest 25 percent a year (on December 31) for four years (beginning with year 1). All 500 stock options that had vested to that point were exercised in year 3 when the XYZ stock was valued at $20 per share. No other options were exercised in year 3 or year 4. Identify XYZ's year 1, 2, 3, and 4 tax deductions and book-tax difference (identify as favorable or unfavorable and as permanent or temporary) associated with the stock options. Note: Leave no answer blank. Enter zero if applicable and select "Not Applicable" if no effect. Temporary differences Permanent differences Book-Tax differences Year 1 Favorable or Unfavorable Temporary or Permanent Book-Tax differences Year 2…
Accounting for Stock Options On April 1 of Year 1, Badger Corp. announced a stock option incentive plan for its top executives. The plan provides certain executives stock options for the company's common stock. Each option allows for the purchase of one share of common stock, par $1, at a standard option price of $25 per share. The rights are nontransferable and are exercisable three years after the grant date and prior to five years from the grant date. Continuing employment is required through the exercise date, and the requisite service period ends on the first possible exercise date. On April 1 of Year 1, 4,000 options were granted to employees when the market price was $30 per share. Using an option-pricing model, the fair value of the options granted was $36,000. Employees exercised 2,400 options on June 30 of Year 4, when the market price of the stock was $45 per share. . a. Compute the total amount of compensation cost for the grant made on April 1 of Year 1. $ 36,000 ✔ b.…
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In the financial year to June 30, 2021, HIFI Ltd issued options for 400,000 shares. During that perlod, the average fair value of one ordinary share was $32 while the evercise price for the shares under option was $26. The company commenced the financial year with 940,000 ordinary shares in issue, while profit for the year amounted to $921.000. REQUIRED: Calculate BEPS and DEPS for the year.
On January 1, 2024, J. Golden Corporation granted an employee an option to purchase 8,500 shares of J. Golden's $3 par common stock at $20 per share. The options became exercisable on December 31, 2025, after the employee completed two years of service. The option was exercised on January 10, 2026. The market prices of J. Golden's stock were as follows: January 1, 2024, $31; December 31, 2025, $53; and January 10, 2026, $46. An option pricing model estimated the value of the options at $8 each on the grant date. For 2024, J. Golden should recognize compensation expense of:
On August 1, 2021, Comical Company issued rights to stockholders to subscribe to additional share of its common stock. A stockholder can buy one new share for every 5 rights plus P25 cash. The rights will expire on October 1, 2021. On July 31, 2021, the market price of a share with the right attached was P50, while the market price of the right alone was P5. Comical's equity on July 31, 2021, comprised of the following: Ordinary Shares, P10 par P4,000,000 Subscribed ordinary shares 1,000,000 Share premium 600,000 Retained earnings 200,000 Treasury shares, 80,000 shares 1,750,000 What is the effect on the stockholders' equity if all but 60,000 share rights were exercised? 1,300,000 increase 1,800,000 increase 2,100,000 increase no change What is the effect on the stockholders' equity as a results of the issuance of stock rights? 200,000 increase no change…
On August 1, 2021, Comical Company issued rights to stockholders to subscribe to additional share of its common stock. A stockholder can buy one new share for every 5 rights plus P25 cash. The rights will expire on October 1, 2021. On July 31, 2021, the market price of a share with the right attached was P50, while the market price of the right alone was P5. Comical’s equity on July 31, 2021, comprised of the following:             Ordinary Shares, P10 par P4,000,000             Subscribed ordinary shares 1,000,000                  Share premium 600,000             Retained earnings 200,000             Treasury shares, 80,000 shares 1,750,000 What is the effect on the stockholders’ equity as a result of the issuance of stock rights? no change 2,500,000 increase 500,000 increase 200,000 increase What is the…
On August 1, 2021, Comical Company issued rights to stockholders to subscribe to additional share of its common stock. A stockholder can buy one new share for every 5 rights plus P25 cash. The rights will expire on October 1, 2021. On July 31, 2021, the market price of a share with the right attached was P50, while the market price of the right alone was P5. Comical’s equity on July 31, 2021, comprised of the following:             Ordinary Shares, P10 par                                                         P4,000,000             Subscribed ordinary shares                                                      1,000,000                  Share premium 600,000             Retained earnings                                                                         200,000             Treasury shares, 80,000 shares                                                 1,750,000 What is the effect on the…
On August 1, 2021, Comical Company issued rights to stockholders to subscribe to additional share of its common stock. A stockholder can buy one new share for every 5 rights plus P25 cash. The rights will expire on October 1, 2021. On July 31, 2021, the market price of a share with the right attached was P50, while the market price of the right alone was P5. Comical’s equity on July 31, 2021, comprised of the following:             Ordinary Shares, P10 par                                                         P4,000,000             Subscribed ordinary shares                                                      1,000,000                  Share premium 600,000             Retained earnings                                                                         200,000             Treasury shares, 80,000 shares                                                 1,750,000 What is the effect on the…

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