Which of the following describes the correct treatment of nonqualified stock options (NQOs)granted when ASC 718 did not apply?
A) Financial-no expense; tax-no deduction.
B) Financial-no expense; tax-deduct bargain element at exercise.
C) Financial-expense value over vesting period; tax-no deduction.
D) Financial-expense value over vesting period; tax-deduct bargain element at exercise.

Question

Quizplus · Accepted Answer

Nonqualified stock options granted before ASC 718 was implemented are accounted for under APB Opinion No. 25. Under this standard, financial accounting does not recognize an expense related to the fair value of the options granted. However, the tax treatment allows for a deduction for the bargain element (the difference between the exercise price and the fair market value of the stock at exercise). Therefore, the correct treatment would be financial-no expense and tax-deduct bargain element at exercise.

Which of the Following Describes the Correct Treatment of Nonqualified