Question

Opting is a Canadian public company. Opting Inc. has a very generous stock option plan that...

Opting is a Canadian public company. Opting Inc. has a very generous stock option plan that allows all of their long term employees to participate. Sandra has worked for the Company for over 10 years and has participated in this plan on a regular basis. With regards to the last options granted to her, the following information is relevant:

  • On January 1, 2018, Sandra was granted options to acquire 150 of the Company's shares at a price of $15.00 per share. On that date, the Company's shares had a fair market value of $14.50 per share

  • Sandra exercises all of these options on February 28, 2019 when the Company's shares have a fair market value of $18.00 per share.

  • On December 1, 2020, all of the shares acquired with the options are sold for $19.00 per share.

Instructions:

Indicate the tax effect of these transactions on Sandra's Net Income for Tax Purposes (NITP) and Taxable Income (TI) during 2018, 2019, and 2020. Where there is no tax effect, enter "none".

2018

Effect on NITP:

Effect on TI:

2019

Effect on NITP:

Effect on TI:
2020

Effect on NITP:

Effect on TI:
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution:

In 2018 there wont be any effect on Net income for tax purpose(NITP) and Taxible Income(TI) as the option is not Exercised in 2018

   In 2019 Option for purchase of shares has been exercised so Effect on Net income for tax purpose and Taxible Income (TI) =(FMV of option on Exercise date -Option price on grant date)xNo of options

Effect is Increase in NITP or TI =(18$-15$)x150Shares = 450$

In 2020 Option for purchase of shares has been Sold so Effect on Net income for tax purpose and Taxible Income (TI) = (Value of Option sold -FMV of option on Exercise date)xNo of options

Effect is Increase in NITP or TI   =(19$-18$)x150=150$

Note: In these case there is no valid Differance between Net income for tax purpose and Taxible Income

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1, 2019, a compensation plan with a stock option (stock option plan) was created...
On January 1, 2019, a compensation plan with a stock option (stock option plan) was created for senior management (senior executives) in which it is stipulated that they can receive the right to purchase up to 18,000 shares common at $ 40 per share. The par value of the share is $ 10. On February 1, 2019 the options were granted to the executives. Options are non-transferable and must continue as employees in order to exercise the option. The options...
On November 1, 2017, Sunland Company adopted a stock-option plan that granted options to key executives...
On November 1, 2017, Sunland Company adopted a stock-option plan that granted options to key executives to purchase 21,900 shares of the company’s $9 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $50, and the fair value option-pricing model determines the...
Exercise 16-10 On November 1, 2017, Pharoah Company adopted a stock-option plan that granted options to...
Exercise 16-10 On November 1, 2017, Pharoah Company adopted a stock-option plan that granted options to key executives to purchase 37,500 shares of the company’s $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model...
Mary Mason and Ann Rob are friends working at Lazboys Inc., Public Company and Dom Inc.,...
Mary Mason and Ann Rob are friends working at Lazboys Inc., Public Company and Dom Inc., CCPC respectively. Both corporations offered identical stock options were as follows. In 2017, they were granted options to acquire 1,000 shares of their employer’s common stock at a price of $20 per share. At the time the options were granted, the shares were trading at $23 per share. In January 2018, when the shares are trading at $45 per share, they exercised their options...
Riverbed Company adopted a stock-option plan on November 30, 2016, that provided that 69,000 shares of...
Riverbed Company adopted a stock-option plan on November 30, 2016, that provided that 69,000 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $8 a share. The market price was $11 a share on November 30, 2017. On January 2, 2017, options to purchase 25,300 shares were granted to president Tom Winter—14,200 for services to be rendered in 2017 and 11,100 for services to be...
Jerry Farrow is employed by a public corporation. His salary for 2020 was $65,000 and deducted...
Jerry Farrow is employed by a public corporation. His salary for 2020 was $65,000 and deducted CPP of $850, UI of $2,400 and RPP of $3,300. In Jan 2018, he was granted options to acquire 1,000 of his employer’s shares at $50 per share. At that time, it was estimated that the fair market value of the shares was $45. In Jan2019, when the estimated fair market value of the shares is $60 per share, he exercises all of these...
The Burford Corporation provides an executive stock option plan. Under the plan, the company granted options...
The Burford Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2016, that permit executives to acquire 12 million of the company's $1 par value common shares within the next five years, but not before December 31, 2019 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $14 per share. The fair value of the options, estimated by an appropriate model, is...
On July 1, 2018, Stellar Company adopted a stock option plan that granted options to key...
On July 1, 2018, Stellar Company adopted a stock option plan that granted options to key executives to purchase 100,000 shares of the company’s $1 par value common stock. The options were granted on January 1, 2019, and were exercisable 3 years after the date of grant if the grantee was still an employee of the company. The options expired 4 years from date of grant. The option price was set at $66, and the fair value option pricing model...
During January, 2017, Lastech Inc. issued options to their employee, Ms. Marianne Black. The options allowed...
During January, 2017, Lastech Inc. issued options to their employee, Ms. Marianne Black. The options allowed Ms. Black to acquire 1,500 of the Company’s common shares at an option price of $23 per share. At the point in time when the options were exercised, the fair market value of the shares was $25 per share. All of the shares that are acquired through the options are sold on December 31, 2019 at a price of $28 per share. Required: Indicate...
On January 1, 2020, the stockholders of Cery, Inc. adopted a stock option plan for top...
On January 1, 2020, the stockholders of Cery, Inc. adopted a stock option plan for top executives whereby each executive might receive rights to purchase up to 15,000 shares of common stock at $40 per share. The par value is $10 per share. On January 1, 2021, options were granted to five executives to purchase 15,000 shares each. The exercise period for these options begins on January 1, 2023, and each grantee executive had to remain an employee of the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT