Imperial Construction Inc. (IC) issued 100,000 incentive stock options (ISOs) to its employees on January 1, 2018 with an estimated value of $5.50 per option. The options vest (accrue) at 25 percent per year for four years (beginning in 2018). Each option allows the holder to purchase one share of stock at $8. On January 1, 2019, employees exercised 12,500 options as IC's stock price reached $14.72. What is the amount of the book-tax difference in 2019 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?

Question

Quizplus · Accepted Answer

The Answer of Imperial Construction Inc. (IC) issued 100,000 incentive stock options (ISOs) to its employees on January 1, 2018 with an estimated value of $5.50 per option. The options vest (accrue) at 25 percent per year for four years (beginning in 2018). Each option allows the holder to purchase one share of stock at $8. On January 1, 2019, employees exercised 12,500 options as IC's stock price reached $14.72. What is the amount of the book-tax difference in 2019 associated with the incentive stock options? Is it favorable or unfavorable? Is it temporary or permanent?