Jackson Corporation Granted an Incentive Stock Option to Employee Caroline

Jackson Corporation granted an incentive stock option to employee Caroline on January 1, two years ago. The option price was $150, and the FMV of the Jackson stock was also $150 on the grant date. The option allowed Caroline to purchase 160 shares of Jackson 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 July 5, 2018, for $400 per share, she must recognize

A) long- term capital gain of $24,000 in the year of sale.
B) long- term capital gain of $40,000 in the year of sale.
C) ordinary income of $16,000 on the exercise date and a long- term capital gain of $24,000 in the year of sale.
D) ordinary income of $16,000 and a short- term capital gain of $24,000 in the year of sale.