Martin Corporation granted a nonqualified stock option to employee Caroline on January 1,2015.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 1,2019,when the stock's FMV was $250.Caroline sells the stock on September 5,2020,for $300 per share.Martin Corporation will be allowed a deduction of
A)$150,000 in 2015.
B)$100,000 in 2019.
C)$50,000 in 2020.
D)$100,000 in 2019 and $50,000 in 2020.

Question

Quizplus · Accepted Answer

Martin Corporation can take a deduction in the year the employee exercises the nonqualified stock option. The deduction is equal to the difference between the FMV of the stock at the time of exercise and the option price, multiplied by the number of shares. In this case, ($250 - $150) * 1,000 = $100,000 in 2019.

Martin Corporation Granted a Nonqualified Stock Option to Employee Caroline