Orange Inc. issued 20,000 nonqualified stock options valued at $40,000 (in total) on December 31, 2015. The options vest entirely on December 31, 2016. The options were all exercised in 2016 with a bargain element on each option of $3. What is the 2016 book-tax difference associated with the stock options?

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Quizplus · Accepted Answer

The book-tax difference in 2016 is the difference between $40,000 expensed for book purposes and the $60,000 deducted for tax purposes ($3 × 20,000). It is favorable because tax deductions exceed book expenses.