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CCS Inc. issued 30,000 nonqualified stock options valued at $60,000 (in total) on December 31, 2018....

CCS Inc. issued 30,000 nonqualified stock options valued at $60,000 (in total) on December 31, 2018. The options vest entirely on December 31, 2019. The options were all exercised in 2019 with a bargain element on each option of $3. What is the 2019 book–tax difference associated with the stock options?

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Answer #1
  • Number of non qualified stock options granted on 31st Dec, 2018 = 30,000
  • Amount of Stock Options = $60,000
  • Therefore, exercise price per option = 60000/30000 = $2


Bargain element is the difference between the Fair Value and the Exercise price, which is taxed as ordinary income on the date at which the options are exercised, i.e. 31st Dec, 2019 in the given case. Bargain element is given to be $3 per option, which implies that the Fair Value is 3+2 = $5 per option.

Thus, the taxable income is 30000*(5-3) = 30000*3 = $90,000
The Accounting Income is also the same.
Therefore, there is no difference between the Accounting Income and the Taxable Income.

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