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

question 51

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 Nasdaq for $19 per share.For financial statement purposes,Haven recorded $16,500 compensation expense for the estimated value of the option.Five years after Haven granted the option to Olivia,she exercised it on a day when Haven stock was selling for $27 per share.
a.How much income must Olivia recognize in the year of exercise?
b.What is Haven's tax deduction in the year of exercise?
c.What is the effect of the exercise on Haven's book income and deferred taxes?

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Definitions:

Learn

The process of acquiring new understanding, knowledge, behaviors, skills, values, attitudes, or preferences through study, experience, or teaching.

Psychological Disorders

Patterns of behavioral or psychological symptoms that impact multiple areas of life and create distress for the person experiencing these symptoms.

Learning Approach

A theoretical perspective focusing on how individuals acquire new behaviors, skills, attitudes, or knowledge through interactions with their environment.

Abnormal Behaviors

are actions or behaviors that deviate significantly from what is considered typical or normal within a culture or society, often indicating a possible psychological disorder.