Refer to the Facts in the Below Problem

Refer to the facts in the below problem. Five years after Haven granted the option to Olivia, she exercised it on a day when Haven stock was selling for $27 per share.
This year, Haven Corporation granted a nonqualified stock option to Olivia to buy 5,000 shares of Haven stock for $20 for five years. At date of grant, Haven stock was selling on the Nasdaq for $19 per share. For financial statement purposes, Haven recorded a $16,500 compensation expense for the estimated value of the option.
a. How much income must Olivia recognize in the year of exercise?
b. What is Haven's tax deduction in the year of exercise?
c. What is the effect of the exercise on Haven's book income and deferred taxes?

Correct Answer:

Verified

a. 5,000 * ($27 - $20) = $35,0...

View Answer

Unlock this answer now
Get Access to more Verified Answers free of charge

View Full Answer For Free