On July 1, 2017, Amos Corporation granted nontransferable, nonqualified stock op

Question

On July 1, 2017, Amos Corporation granted nontransferable, nonqualified stock options to certain key employees as additional compensation. The options permit the purchase of 20,000 shares of Amos’s $1 par common stock at a price of $32 per share. On the grant date, the stock’s market value was $32 per share. The options were exercisable beginning July 1, 2021, and expire on July 1, 2025. On February 3, 2023, when the stock was selling for $53 per share, all options were exercised. Amos's tax rate is 35%. Amos has a December 31 year-end for financial reporting purposes.

Required:

1. How much compensation expense should Amos record in 2017 and 2018 if the options are worth $15 per share on the grant date?

2. Compute the tax benefit that Amos will receive in 2023 when the employees exercise the options.

Explanation / Answer

1.

( being Stock option outstanding made)

2.

Employees compensation expenses A/c dr          (20,000*(32-15)) $ 340000                                         To Employee stock option out standing A/c $ 340000

( being Stock option outstanding made)

2.

Tax Benefit will receive in 2023 Exercise option        20,000 Fair market value on the date of exercise $ 32 Exercise price $ 15 Tax (20000* (32-15)) 340000 Sale option        20,000 Sale price $ 53 Fair market value on the date of exercise $ 32 Tax (20000* (53-32)) 420000 Tax benefit(340000-420000) $ 80000

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.