Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $12 per share) from his employer. At the time he started working, the stock price was $11 per share. Now that the share price is $25 per share, he exercises all of the options. Two years later Bad Brad sells the stock for $27 per share. What is Bad Brad's basis in his stock for purposes of calculating the gain or loss at the time of the sale?
A) $7,200.
B) $7,800.
C) $15,000.
D) $16,200.

Question

Quizplus · Accepted Answer

The basis is the $7,200 (600 shares × $12 strike price) cash paid and the $7,800 (600 shares × $13 bargain element) income recognized on the exercise-which is equal to the market price on the exercise date.

Bad Brad Received 20 NQOs (Each Option Gives Him the Right