Compute the book tax difference

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Question - Assume that on January 1, year 1, ABC Inc. issued 9,450 stock options with an estimated value of $12 per option. Each option entitles the owner to purchase one share of ABC stock for $27 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 9,450 stock options were exercised in year 3 when the ABC stock was valued at $33 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:

Compute the book tax difference for both Incentive Stock Options and Nonqualified Stock Options for Years 1, 2 and 3. Include whether they are favorable or nonfavorable and whether they are temporary or permanent.

Reference no: EM133025623

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