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At the beginning of its first year of operations, the Barker Co.grants non qualified options on 5,000 of its $1 par common stock.The exercise price of each option is $30. The fair market value ofeach option on the grant date is $6 and the options vest after 4years. The fair market value of each common share on the grant dateis $29. The tax rate is 20% in all years.

1. How much is the balance of the deferred tax asset at the endof the first year of the vesting period?

2. How much is the book value of common stock issued if all theoptions are exercised when the fair market value of each commonshare is $40 ?

3. Barker's pre-tax income is $300,000 in the period when theoptions are exercised. The fair market value of each share on theexercise date is $40. How much is taxable income in thatperiod?

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Beverley Smith
Beverley SmithLv2
28 Sep 2019

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At the beginning of its first year of operations, the Barker Co.grants non qualified options on 5,000 of its $1 par common stock.The exercise price of each option is $30. The fair market value ofeach option on the grant date is $6 and the options vest after 4years. The fair market value of each common share on the grant dateis $29. The tax rate is 20% in all years. 1)How much is the balanceof the deferred tax asset at the end of the first year of thevesting period? 2)How much is the book value of common stock issuedif all the options are exercised when the fair market value of eachcommon share is $40 ? 3)Barker's pre-tax income is $300,000 in theperiod when the options are exercised. The fair market value ofeach share on the exercise date is $40. How much is taxable incomein that period?

Several years ago, the Johnson Co. granted options on 5,000shares of its common stock. The fair market value of each option onthe grant date was $3 per share. The exercise price is $2. The taxrate (all years) is 20%. The options are exercised at the end ofthe current year. At the beginning of the current year "Paid-incapital tax effect of stock options" had a credit balance of$10,000 1.What is the ending balance of Paid-in capital tax effectof stock options if the fair market value of the stock on theexercise date was $3 per share ( See textbook p. 1134-5 Case b. )?2.What is the balance of Paid-in capital tax effect of stockoptions at the end of the current year if the fair market value ofJohnson's stock on the exercise date was $11 per share (textbookCase a. )? 3.What is the ending Paid-in capital tax effect of stockoptions, if the market price of the stock on the exercise date is$5.

Several years ago, the Johnson Co. granted options on 5,000shares of its common stock. The fair market value of each option onthe grant date was $3 per share. The exercise price is $2. The taxrate (all years) is 20%. The options are exercised at the end ofthe current year. At the beginning of the current year "Paid-incapital tax effect of stock options" had a credit balance of$10,000

1)What is the ending balance of Paid-in capital tax effect ofstock options if the fair market value of the stock on the exercisedate was $3 per share

2)What is the balance of Paid-in capital tax effect of stockoptions at the end of the current year if the fair market value ofJohnson's stock on the exercise date was $11 per share

3)What is the ending Paid-in capital tax effect of stockoptions, if the market price of the stock on the exercise date is$5.

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