Reference no: EM132969711
Question - On January 1, 20x1, METTLE STRENGTH Co. issued share options to its employees. The fair value of the share options on grant date is 2,000,000. The share options vest in three years. METTLE is subject to a tax rate of 30% and is allowed a tax deduction for the intrinsic value of the share options.
1. If the intrinsic value of the share options on December 31, 20x1 is 1,600,000, how should METTLE account for the tax effect of the share options?
a. recognize income tax benefit of 160,000 in profit or loss
b. recognize income tax benefit of 160,000 in equity
c. recognize income tax benefit of 133,336 in equity
d. recognize income tax benefit of 133,336 in profit or loss
2. If the intrinsic value of the share options on December 31, 20x1 is 2,400,000, how should METTLE account for the tax effect of the share options?
a. recognize income tax benefit of 40,000 in profit or loss
b. recognize income tax benefit of 40,000 in equity
c. recognize income tax benefit of 166,667 in equity
d. recognize income tax benefit of 166,667 in profit or loss
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