Which of the Following Describes the Correct Treatment of Incentive

question 135

Multiple Choice

Which of the following describes the correct treatment of incentive stock options (ISOs) granted when ASC 718 (a codification of FAS 123R) applies?

• A) Financial accounting-no expense; tax-no deduction
• B) Financial accounting-no expense; tax-deduct bargain element at exercise
• C) Financial-expense value over vesting period; tax-no deduction
• D) Financial-expense value over vesting period; tax-deduct bargain element at exercise

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Definitions:

Allowance

In accounting, a reduction from the gross amount of receivables to reflect the estimated uncollectible amounts; in budgeting, an allocated amount for specific expenses.

Doubtful Accounts

Accounts receivable that a company does not expect to collect in full, often leading to an allowance for doubtful accounts as a contra asset on the balance sheet.

Allowance Method

An accounting technique used to manage accounts receivable and bad debt expense by estimating uncollectible accounts at the end of each period.

Net Income

The total revenue of a business minus total expenses, representing the profit made during a specific period.