Martin Corporation granted a nonqualified stock option to employee Caroline on January 1, 2012. The option price was $150, and the FMV of the Martin stock was also $150 on the grant date. The option allowed Caroline to purchase 1,000 shares of Martin stock. The option itself does not have a readily ascertainable FMV. Caroline exercised the option on August 1, 2015 when the stock's FMV was $250. If Caroline sells the stock on September 5, 2016 for $300 per share, she must recognize

Question

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On the exercise date, the employee recognizes ordinary income equal to the spread between the FMV and the option price. Any future appreciation in value is capital gain recognized at the sale date.

Martin Corporation Granted a Nonqualified Stock Option to Employee Caroline