Five years ago,Devin Corporation granted Laura nonqualified stock options to buy 1,000 shares of Devin stock at $22 per share exercisable for six years.At the date of grant,the stock was selling for $19 per share.Laura exercised the options this year when the market price was $28 per share.How much income must Laura recognize from the exercise of the options?

Question

Quizplus · Accepted Answer

To determine the income that Laura must recognize from the exercise of the options, we need to calculate the difference between the fair market value (FMV) of the stock at exercise and the exercise price:

FMV at exercise: $28 per share
Exercise price: $22 per share

Therefore, the difference is $28 - $22 = $6 per share.

Since Laura exercised the options to buy 1,000 shares, her total income from the exercise would be:

$6 per share x 1,000 shares = $6,000

This amount is considered ordinary income and must be reported on Laura's tax return.

Five Years Ago,Devin Corporation Granted Laura Nonqualified Stock Options to Buy