Refer to the Facts in the Below Problem

question 48

Essay

Refer to the facts in the below problem. Five years after Haven granted the option to Olivia, she exercised it on a day when Haven stock was selling for $27 per share.
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 a $16,500 compensation expense for the estimated value of the option.
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?

---

Definitions:

SPN

Short for Suspect Parameter Number, a code used in the J1939 protocol to identify specific functions or faults in vehicle systems.

J1939

J1939 is a set of standards used in the heavy-duty trucking industry for communication and diagnostics among vehicle components, facilitating efficient data sharing and control among the engine, transmission, and other systems.

DTC

Diagnostic Trouble Code, a specific code that indicates the nature of a problem detected in a vehicle's systems or components.

SAE J1939 Data Bus

A vehicle data bus standard developed by the Society of Automotive Engineers (SAE) for communication among vehicle components, primarily in heavy-duty vehicles.