On January 1,2005 [Before the Adoption of ASC 718],Net Optimizers

question 110

Essay

On January 1,2005 [before the adoption of ASC 718],Net Optimizers Inc.granted 1,000 nonqualified stock options (NQOs)valued at $.05 per option.Each option entitles the owner to purchase one share of stock for $1.These options vest at 10 percent per year for ten years.On December 31,2017,300 options are exercised when the stock price is $5.In 2017,what is the book-tax difference associated with the stock options? Is it favorable or unfavorable? Is it permanent or temporary?

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Definitions:

Discounted Present Value

Discounted present value is a financial calculation that determines the current worth of a future sum of money or stream of cash flows, given a specified rate of return.

Financial Attribute

Characteristics or information pertaining to financial entities, transactions, or instruments that can be measured or identified, such as price, yield, risk, or returns.

Dividends

Payments made by a corporation to its shareholder members, usually derived from profits.

Risk-Adjusted

A process or methodology that adjusts for the risk involved in a project or investment, allowing for more accurate comparisons or evaluations.