As the book will never have a related expense pre

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 estimated
value in each of those years. $25,000 book expense ($10/share x 5,000 shares / 2) each
in 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 . In 2016
(year of exercise), a deduction for the “bargain element” = ($15/share - $5/share) x 5,000
shares = $50,000 .
c. iii. $25,000 unfavorable temporary BTD each in 2014 and 2015 . $50,000 favorable
temporary 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 from
River Amusements, an amusement park chain that is organized as a corporation. The taxable
income (or NOL amounts) listed are the original amounts reported on the tax return (before
any consideration is given to carrybacks with NOLs in the later years). Note, however, that
these taxable income (NOL) numbers already incorporate the net capital gain amounts that
occurred within that year (the amount listed in the next row). Recall that, while net capital
gains are included in the calculation for taxable income and NOLs in a given year, capital
losses can only be applied against other capital gains that year before being carried back and
then forward. If there is a net capital loss in that year (e.g. 2016), it cannot offset ordinary
taxable income and, therefore, is not part of the $95,000 of taxable income in 2016.
2013 2014 2015 2016 2017
Taxable income (NOL) $87,000 $91,000 $75,000 $95,000 ($100,000
)
Net capital gain (loss) $45,000 $10,000 ($61,000) $13,000
a. ( 12 points: 6 for the answer to each question ) What is the amount of net capital loss
carryover to 2017 from the net capital loss in 2016? In what future year will the remaining
net capital loss carryover from 2016 expire?
b. ( 10 points: 5 for the answer to each question ) Assume that all of the capital loss
carryover to 2017 is applied against the $13,000 of net capital gain. This generates a book-tax
difference for 2017. Is this book-tax difference favorable or unfavorable? Is it temporary or
permanent?
ANSWERS:
a. $6,000 of capital loss carryover to 2017. It will expire if not used by the end of 2021
b. Favorable . Temporary
.
.