1, Creek, Inc. reported a net capital loss of $50,000 in year 4. In year 3, it h
ID: 2618253 • Letter: 1
Question
1, Creek, Inc. reported a net capital loss of $50,000 in year 4. In year 3, it had originally recorded a net capital gains of $15,000 in year 3 (before any capital loss carryback). In year 5, it generated a $40,000 net capital gain (before any capital loss carryovers). Select the amount and nature of the book-tax difference in year 5 related to the net capital loss carryover.
a
$35,000 favorable
b
$40,000 favorable
c
$35,000 unfavorable
d
None of these
2, Abble Corporation issued 24,000 nonqualified stock options valued at $72,000 (in total—$3 each). Each option entitles the holder to purchase a share of stock. The options vest over three years: one third in 2016, a third in 2017, and a third in 2018. 2,000 options are exercised in 2017 with a bargain element on each option of $8. Select the 2017 book-tax difference associated with the stock options, assuming that ASC 718 applies to the options.
a
$8,000 unfavorable
b
$6,000 unfavorable
c
$6,000 favorable
d
$2,000 unfavorable
a
$35,000 favorable
b
$40,000 favorable
c
$35,000 unfavorable
d
None of these
2, Abble Corporation issued 24,000 nonqualified stock options valued at $72,000 (in total—$3 each). Each option entitles the holder to purchase a share of stock. The options vest over three years: one third in 2016, a third in 2017, and a third in 2018. 2,000 options are exercised in 2017 with a bargain element on each option of $8. Select the 2017 book-tax difference associated with the stock options, assuming that ASC 718 applies to the options.
a
$8,000 unfavorable
b
$6,000 unfavorable
c
$6,000 favorable
d
$2,000 unfavorable
Explanation / Answer
For question 1 correct answer will be option a) $35000, favorable.
In last three year in year there is was a loss of $50000 out of which there is a gain of $15000 so the remaining $35000 net capital loss carryover and it will be favorable for the company.
For 2nd question correct answer will be option b) $6000, unfavorable.
Difference associated with stock option is $3*2000 = $6000
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