Question

In: Accounting

part a Under its executive stock option plan, N Corporation granted options on January 1, 2018,...

part a

Under its executive stock option plan, N Corporation granted options on January 1, 2018, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. Ignoring taxes, what is the effect on earnings in the year after the options are granted to executives?

Multiple Choice

$0.

$90 million.

$20 million.

$60 million

part b

When stock is issued in exchange for property, the best evidence of fair value might be any of the following except:

Multiple Choice

The price of the stock quoted on the stock exchange.

The appraised value of the property received.

The average book value of outstanding stock.

The selling price of the stock in a recent transaction.

Part c

Under IFRS, a deferred tax asset for stock options:

Multiple Choice

Isn't created if the award is "in the money;" that is, it has intrinsic value.

Is the portion of the options' intrinsic value earned to date times the tax rate.

Is the tax rate times the amount of compensation.

Is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense.

Solutions

Expert Solution

Part a

Granted options =15 million

Price per option = $4

Total option expense in 3 years =15*4= 60 million

Effect on earnings in the year after the options are granted to executives =60 million/3 =20 million

Part b

Whenever stock is issued in exchange of property then fair value can be fair value of stock hence it can be value on stock market, fair value of property received hence it can be The appraised value of the property received and last selling price of stock. However it cannot be The average book value of outstanding stock because it does not denotes the fair value of stock. Hence the right answer of this question is,

The appraised value of the property received.

PArt c

Under IFRS, a DTA is cannot be created until that asset is in money hence this option is wrong

a DTA for stock options Is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense as per US GAPP not as per IFRS. hence this option is wrong

Under IFRS, a DTA for stock options Is date times the tax rate hence it is not the tax rate times the amount of compensation. hence this option is wrong

Under IFRS, a DTA for stock options Is the portion of the options' intrinsic value earned to date times the tax rate. Hence this is correct option.

ekkarill92 answered 1 year ago
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