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

question 66

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:

Critical Ratio

A metric used in inventory management and project scheduling that indicates the priority of a task based on its urgency and importance.

Relative Priority

The ranking or importance of tasks or projects in comparison to each other based on criteria such as urgency or impact.

Utilization

The ratio of the time a resource is actually used to the time it is available for use, measured as a percentage, indicating the efficiency of the resource use.

Flow Time

The total time it takes for a product to move through a production process, from start to finish.