In January 2016, Khors Company Issues Nonqualified Stock Options to Its

question 57

Multiple Choice

In January 2016, Khors Company issues nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2016, the company experiences a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2016, what is the nature of the book-tax difference due to the options exercised?

• A) Favorable and temporary
• B) Favorable and permanent
• C) Unfavorable and temporary
• D)Unfavorable and permanent
• E)Not enough information to determinE.The adjustment is unfavorable because the book deduction exceeds the tax deduction. The adjustment is permanent because it will not ever reversE.

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Definitions:

Oocytes

Immature eggs found in the ovaries of females, which can mature and potentially be fertilized.

Hormone

Substance secreted by endocrine tissues into the blood that acts on a target tissue to produce a specific response.

Follicles

Structures within the ovaries that contain a developing egg and produce hormones, or small sacs in the skin from which hair grows.

FSH

Follicle-stimulating hormone, a gonadotropic hormone secreted by the anterior pituitary gland responsible for maturation of ovarian follicles and sperm production.