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

question 22

Essay

On January 1, 2005 [before the adoption of ASC 718 (a codification of FAS 123R)], 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, 2014, 300 options are exercised when the stock price is $5. In 2014, 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:

Percentage Calculation

The process of determining the portion or fraction of a whole that is represented by a specific number, often used in financial and statistical analyses.

Financial Calculation

The process of applying mathematical methods and formulas to analyze or predict financial outcomes.

Daily Interest

Interest calculated on a daily basis, often used for savings or loan products.

Financial Calculation

The process of determining the financial implications of various financial decisions through computations.