Orange Inc.issued 20,000 nonqualified stock options valued at $40,000 (in total)on December 31,2017.The options vest entirely on December 31,2018.The options were all exercised in 2018 with a bargain element on each option of $3.What is the 2018 book-tax difference associated with the stock options?

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Quizplus · Accepted Answer

The bargain element on each option is $3, so the total bargain element is $20,000 (20,000 options x $3). This is a taxable gain for book purposes, but not for tax purposes. Therefore, the book-tax difference is $20,000 unfavorable.