Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 per share)from his employer.At the time he started working the stock price was $11 per share.Now that the share price is $25 per share, he exercises all of the options.Two years later Bad Brad sells the stock for $27 per share.What is Bad Brad's basis in his stock for purposes of calculating the gain or loss?
A)$6,000.
B)$9,000.
C)$15,000.
D)$16,200.

Question

Quizplus · Accepted Answer

Bad Brad's basis in the stock is calculated based on the price at which he exercises the options. He had 20 NQOs, each giving him the right to buy 30 shares at $10 per share. Therefore, he bought 600 shares (20 options * 30 shares) at $10 each, totaling $6,000. However, since these are Non-Qualified Stock Options (NQOs), the difference between the exercise price and the market value at the time of exercise is considered taxable income. At the time of exercise, the stock was $25 per share, making the market value of the shares $15,000 (600 shares * $25). The difference between the market value at exercise ($15,000) and the amount he paid ($6,000) is $9,000, which is added to his basis. Therefore, his total basis is $6,000 (amount paid) + $9,000 (income recognized) = $15,000.

Bad Brad Received 20 NQOs (Each Option Gives Him the Right