In January 2016, Khors Company issues nonqualified stock options to its CEO, Jenny Svaro. Because the company does not expect Ms. Svaro to leave the company, the options vest at the time they are granted with a total value of $50,000. In December of 2016, the company experiences a surge in its stock price, and Ms. Svaro exercises the options. The total bargain element at the time of exercise is $40,000. For 2016, what is the nature of the book-tax difference due to the options exercised?
A) Favorable and temporary
B) Favorable and permanent
C) Unfavorable and temporary
D)Unfavorable and permanent
E)Not enough information to determinE.The adjustment is unfavorable because the book deduction exceeds the tax deduction. The adjustment is permanent because it will not ever reversE.

Question

Quizplus · Accepted Answer

The book-tax difference due to the options exercised is unfavorable and permanent because the book deduction exceeds the tax deduction and this difference will not reverse in future accounting periods.

In January 2016, Khors Company Issues Nonqualified Stock Options to Its