Six years ago, HOPCO granted Mr. Sing a nonqualified option to purchase 1,000 shares of HOPCO stock at $55 per share. On date of grant, the market price was $50 per share. This year, Mr. Sing exercised the option when the market price was $64 per share. How much ordinary income does Mr. Sing recognize because of the exercise?

Question

Quizplus · Accepted Answer

The ordinary income recognized by Mr. Sing is equal to the excess of the fair market value of the stock on the exercise date ($64) over the option exercise price ($55), multiplied by the number of shares (1,000). Therefore, the ordinary income recognized by Mr. Sing is ($64 - $55) x 1,000 = $9,000.

Six Years Ago, HOPCO Granted Mr