Begining of year 1 A company issued 6,000 restricted share units and 10,000 stock options to...

Begining of year 1

A company issued 6,000 restricted share units and 10,000 stock options to employees. The shares are currently trading for $10 per share. The option exercise price is set equal to $10 and the fair value of each option is $3. The vesting service period for the restricted share units and stock options is 18 months.

Other information: The firm expects all of the employees receiving restricted share units and stock options will remain for the 18 month required service period.

At the end of year 2 employees exercised all of their 10,000 options. The fair value of the firm’s stock on this date is $19 per share. The firm’s stock had a value of $13 per share on June 30 of Year 2 when the restricted stock units and the stock options vested.

The firm receives a deduction equal to the employee’s gain on the exercise of the option when the option is exercised and a deduction for value of restricted share units when the restrictions elapse.

Pre tax accounting income year 1: $900,000

Pre tax accounting income year 2: $1,200,000

Tax rate 30%.

Please find the taxable income, deferred tax asset and libility for year 1 and 2.

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ekkarill92 answered 1 year ago

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