On January 1, 2015, GrowCo issued 50,000 nonqualified stock options (NQOs) valued at $1 per option. Each option entitles the owner to purchase one share of stock for $4. These options vest (accrue) at 20 percent per year for five years beginning in 2015. By the end of 2016, 20,000 of the options had vested. At the end of 2016, these options were exercised when the stock price is $6.25. What is the total value of the book-tax difference associated with the stock options for 2016? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary? (Note that ASC 718 applies to these transactions.)

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The Answer of On January 1, 2015, GrowCo issued 50,000 nonqualified stock options (NQOs) valued at $1 per option. Each option entitles the owner to purchase one share of stock for $4. These options vest (accrue) at 20 percent per year for five years beginning in 2015. By the end of 2016, 20,000 of the options had vested. At the end of 2016, these options were exercised when the stock price is $6.25. What is the total value of the book-tax difference associated with the stock options for 2016? Is it favorable or unfavorable? How much of the adjustment is permanent and how much is temporary? (Note that ASC 718 applies to these transactions.)

On January 1, 2015, GrowCo Issued 50,000 Nonqualified Stock Options