On December 31, 2015, Khors Company issued nonqualified stock options to its CEO. The options fully vest on December 31, 2016 and the options were valued at $50,000 on the grant date. Ms. Svaro exercised the options on December 31, 2016. The total bargain element at the time of exercise was $40,000. For 2016, what is the nature of the book-tax difference due to the options exercised?

Question

Quizplus · Accepted Answer

The adjustment is unfavorable because the book deduction exceeds the tax deduction. The adjustment is permanent because it will not ever reverse.

On December 31, 2015, Khors Company Issued Nonqualified Stock Options