Martin Corporation granted a nonqualified stock option to employee Caroline on January 1,2013.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 1,2017,when the stock's FMV was $250.If Caroline sells the stock on September 5,2018,for $300 per share,she must recognize

Question

Quizplus · Accepted Answer

A) On the exercise date, the employee recognizes ordinary income equal to the spread between the FMV and the option price. 1,000 shares × ($250 - $150) = $100,000. Any future appreciation in value is capital gain recognized at the sale date. 1,000 shares × ($300 - $250) = $50,000 LTCG.

Martin Corporation Granted a Nonqualified Stock Option to Employee Caroline