Eight years ago, Acnex Inc. granted Ms. Cardena a nonqualified option to purchase 1,000 shares of Acnex stock at $44 per share. On date of grant, the market price was $42 per share. This year, Ms. Cardena exercised the option when the market price was $75 per share. Which of the following statements is true?

Question

Quizplus · Accepted Answer

Ms. Cardena recognizes $31,000 of ordinary income, which is the difference between the market price at the time of exercise ($75) and the exercise price ($44), multiplied by the number of shares (1,000). Acnex is allowed a corresponding $31,000 deduction for the same reason.

Eight Years Ago, Acnex Inc