This Year,Haven Corporation Granted a Nonqualified Stock Option to Olivia

question 37

Essay

This year,Haven Corporation granted a nonqualified stock option to Olivia to buy 5,000 shares of Haven stock for $20 for five years.At date of grant,Haven stock was selling on the Nasdaq for $19 per share.For financial statement purposes,Haven recorded $16,500 compensation expense for the estimated value of the option.
a.How much income must Olivia recognize as a result of the grant of the option?
b.Can Haven deduct the $16,500 compensation expense on this year's tax return?
c.Assuming a 35% tax rate,compute Haven's deferred tax asset or deferred tax liability (identify which)resulting from the $16,500 compensation expense.

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Definitions:

Dermis

Dense irregular connective tissue that forms the deep layer of the skin.

Diencephalon

A region of the brain that includes structures such as the thalamus and hypothalamus, involved in sensory and autonomic functions.

Anterior Pituitary

The front portion of the pituitary gland, producing and releasing hormones that regulate various bodily functions.

Posterior Pituitary

A part of the brain that releases hormones produced in the hypothalamus, such as oxytocin and vasopressin.