Several years ago, the Johnson Co. granted options on5,000 shares of its common stock. The fair market value of eachoption on the grant date was $3 per share. The exercise price is$2. The tax rate (all years) is 20%. The options are exercised atthe end of the current year. At the beginning of the current year"Paid-in capital tax effect of stock options" had a credit balanceof $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 ( 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.