This year, Haven Corporation granted a nonqualified stock option to Olivia to buy 5,000 shares of Haven stock for $20 for five years. At date of grant, Haven stock was selling on the Nasdaq for $19 per share. For financial statement purposes, Haven recorded a $16,500 compensation expense for the estimated value of the option.
a. How much income must Olivia recognize as a result of the grant of the option?
b. Can Haven deduct the $16,500 compensation expense on this year's tax return?
c. Assuming a 35% tax rate, compute Haven's deferred tax asset or deferred tax liability (identify which) resulting from the $16,500 compensation expense.

Question

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The Answer of This year, Haven Corporation granted a nonqualified stock option to Olivia to buy 5,000 shares of Haven stock for $20 for five years. At date of grant, Haven stock was selling on the Nasdaq for $19 per share. For financial statement purposes, Haven recorded a $16,500 compensation expense for the estimated value of the option.
a. How much income must Olivia recognize as a result of the grant of the option?
b. Can Haven deduct the $16,500 compensation expense on this year's tax return?
c. Assuming a 35% tax rate, compute Haven's deferred tax asset or deferred tax liability (identify which) resulting from the $16,500 compensation expense.

This Year, Haven Corporation Granted a Nonqualified Stock Option to Olivia