ABC Corporation awarded John 1,000 options in 2015; each option allows him to purchase one share of ABC Corporation stock for $20.The ABC stock is selling for $18 per share at the grant date.In 2017, John exercises the options when the stock's selling price was $40 per share.In 2019, John sells the stock for $50 per share.What is ABC Corporation's deduction if they are nonqualified stock options?

Question

Quizplus · Accepted Answer

ABC Corporation can take a deduction equal to the bargain element (difference between the exercise price and the market price at exercise) when John exercises the options. In 2017, the deduction is ($40 - $20) * 1,000 = $20,000.

ABC Corporation Awarded John 1,000 Options in 2015; Each Option