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Orange Inc
Orange Inc. issued 27,000 nonqualified stock options valued at $54,000 (in total). The options vest over two years—half in 2018 (the year of issue) and
half in 2019. One thousand options are exercised in 2019 with a bargain element on each option of $8. What is the 2019 book-tax difference associated
with the stock options?
Multiple Choice
$1900 unfevorabie
$19,000 favorable.
$27,000 unfavorable.
$27,000 favorable.
None of the choices are correct.
Expert Solution
Computation of 2019 Book-Tax Difference associated with the Stock Options:
Given,
Non-qualifield Stock Option = 27,000
Valued at = $54,000 (in total)
In 2019, 1,000 stock options are excercised at $8 = 1,000*$8 = $8,000
2019 Book-Tax Difference associated with the Stock Options = ($54,000/2) - $8,000 = $27,000 - $8,000 = $19,000
It is unfavorable because book expenses exceed tax deductions.
So, the correct option is 1st "$19,000 Unfavorable".
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