Martin Corporation granted an incentive stock option to employee Caroline on January 1,2013.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 160 shares of Martin stock.Caroline exercised the option on August 1,2017,when the stock's FMV was $250.Unless otherwise stated,assume Caroline is a qualifying employee.If Caroline sells the stock on September 5,2019,for $350 per share,she must recognize (ignore alternative minimum tax)

Question

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Caroline does not recognize any income or gain on the exercise of the incentive stock option in 2017 because the exercise price equals the FMV of the stock. When Caroline sells the stock in 2019, she will recognize a long-term capital gain of $100 per share ($350 selling price - $150 exercise price), or a total gain of $16,000 ($100 x 160 shares). Option D is the correct answer.

Martin Corporation Granted an Incentive Stock Option to Employee Caroline