# As the book will never have a related expense pre

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as the book will never have a related expense pre-SFAS 123R(never unwind).b. i. Post-SFAS 123R recognize proportion of estimated value proportionally as it vests.Vesting period is 50 percent per year in 2013 and 2014; so recognize 50% of estimatedvalue in each of those years.\$25,000 book expense(\$10/share x 5,000 shares / 2)eachin 2014 and 2015.No book expense in 2016.b. ii. This will be the same answer as in a. ii.\$0 for each of 2014 and 2015. In2016(year of exercise), a deduction for the “bargain element” = (\$15/share - \$5/share) x 5,000shares =\$50,000.c. iii.\$25,000 unfavorable temporary BTD each in 2014 and 2015.\$50,000 favorabletemporary BTD in 2016(the year the prior two unfavorable temporary BTDs reverse).3
3.The table below lists the taxable income (or NOL) for each of the following tax years fromRiver Amusements, an amusement park chain that is organized as a corporation. The taxableincome (or NOL amounts) listed are the original amounts reported on the tax return (beforeany consideration is given to carrybacks with NOLs in the later years). Note, however, thatthese taxable income (NOL) numbers already incorporate the net capital gain amounts thatoccurredwithin that year(the amount listed in the next row). Recall that, while net capitalgains are included in the calculation for taxable income and NOLs in a given year, capitallosses can only be applied against other capital gains that year before being carried back andthen forward. If there is a net capital loss in that year (e.g. 2016), it cannot offset ordinarytaxable income and, therefore, is not part of the \$95,000 of taxable income in 2016.20132014201520162017Taxable income (NOL)\$87,000\$91,000\$75,000\$95,000(\$100,000)Net capital gain (loss)\$45,000\$10,000(\$61,000)\$13,000a. (12 points: 6 for the answer to each question) What is the amount of net capital losscarryover to 2017 from the net capital loss in 2016? In what future year will the remainingnet capital loss carryover from 2016 expire?b. (10 points: 5 for the answer to each question) Assume that all of the capital losscarryover to 2017 is applied against the \$13,000 of net capital gain. This generates a book-taxdifference for 2017. Is this book-tax difference favorable or unfavorable? Is it temporary orpermanent?ANSWERS:a.\$6,000of capital loss carryover to 2017. It will expire if not used by the end of2021b.Favorable.Temporary..

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