Under U.S. GAAP, a deferred tax asset for stock options:
A)Is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense.
B)Is the portion of the options' intrinsic value earned to date times the tax rate.
C)Is the tax rate times the fair value of all the options.
D)Isn't created if the award is "in the money;" that is, it has intrinsic value.

Question

Quizplus · Accepted Answer

Under U.S. GAAP, a deferred tax asset for stock options is created for the cumulative amount of the fair value of the options the company has recorded for compensation expense. This is because when a company grants stock options to employees, it incurs a compensation expense equal to the fair value of the options. However, for tax purposes, the company cannot take a deduction until the options are exercised and the employee recognizes taxable income. Therefore, the deferred tax asset represents the future tax benefit the company will receive when the options are exercised and the compensation expense is deductible for tax purposes.

Under US GAAP, a Deferred Tax Asset for Stock Options