Question #10
Reading: Reading 9 Employee Compensation - Post-Employment and Share-Based
PDF File: Reading 9 Employee Compensation - Post-Employment and Share-Based.pdf
Page: 4
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
For a stock grant, from the company's perspective, a tax windfall is most likely to result when the:
Answer Choices:
A. stock price at settlement was higher than the stock price on the grant date
B. intrinsic value at settlement was lower than the fair value on the grant date
C. stock price at settlement was lower than the stock price on the grant date
Explanation
Tax deduction for stock grant = share price on settlement date x number of shares vested
If the stock price on the settlement date is higher than the price on the grant date, there
would a higher tax deduction than the cumulative compensation expense reported,
resulting in a tax windfall or excess tax benefit.