Question

Orange Inc. issued 29,500 nonqualified stock options valued at $59,000 (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 $5. What is the 2019 book-tax difference associated with the stock options?

Answer 1

The 2019 book-tax difference associated with the stock options is $24,500 unfavorable

Step-by-step explanation:

The steps to compute the book-tax difference is explained below:

Step 1: First we have to divide the total stock amount by two years so that we can find out the one year amount

Step 2: Then, compute the option amount for 2019, and subtract it from step 1

So, the total stock amount for year 1 equals to

= Issued non qualified stock options ÷ 2 years

= $59,000 ÷ 2

= $29,500

Now, the book difference would equal to

= $29,500 - (1,000 options × $5)

= $29,500 - $5,000

= $24,500 unfavorable