1) Options on 1000 shares are outstanding at the beginning and end of current year. The exercise price is $20, the fair market value on grant date was $5 and the ave market price of the stock is $30. The options vest 4 years after the grant date which is one year after the end of the current year. The tax rate is 30%. Using the (modified ) treasury stock method, how many incremental shares outstanding result from the issue and buyback? Round your answer to the nearest whole share.
2) The Johnson Co. grants options on 5,000 shares of its common stock. The fair market value of each option on the grant date is $3 per share. The exercise price is $2. The tax rate (all years) is 20%. The options were exercise in 2011. Pretax income for 2011 was $50,000.
a)How much tax expense is recognized for 2011 if the fair market value of the stock on the exercise date was $3 per share?
b)How much tax expense is recognized to 2011 is the fair market value of Johnson's stock on the exercise date was $11 per share?
c)How much income tax expense is recognized by Johnson for 2011 if the market price of the stock on the exercise date is $5.
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