Martin Corporation granted a nonqualified stock option to employee Caroline on January 1,2011. 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 1,2014 when the stock's FMV was $250. Caroline sells the stock on September 5,2015 for $300 per share. Martin Corporation will be allowed a deduction of
A)$150,000 in 2011.
B)$100,000 in 2014.
C)$50,000 in 2015.
D)$100,000 in 2014 and $50,000 in 2015.

Question

Quizplus · Accepted Answer

Martin Corporation can take a deduction in the year the employee exercises the option. The deduction is equal to the difference between the FMV of the stock and the option price at the time of exercise. In 2014, the FMV was $250, and the option price was $150, so the deduction is $100,000 (1,000 shares x $100 difference).

Martin Corporation Granted a Nonqualified Stock Option to Employee Caroline