A Nonqualified Stock Option Will Create a Permanent Book-Tax Difference

question 124

True/False

A nonqualified stock option will create a permanent book-tax difference in a given year if it accrues during the year but is exercised in a later year.
A deductible temporary difference (deferred tax asset) is created in the year the option accrues and is recorded as an expense for book purposes.

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Definitions:

Corporate Powers

The legal rights and authorities that a corporation possesses, including entering contracts, owning property, and conducting business activities.

Transfer Restriction

Legal limitations or conditions placed on the transferability of an asset or security.

Share Certificate

A physical document certifying ownership of a particular number of shares in a company.

MBCA

Model Business Corporation Act, a template for state legislation that provides a statutory framework for the creation and operation of corporations within the United States.