On May 21,2014,Becker Corporation granted Howard an option to acquire 200 shares of the company's stock for $8 per share.The fair market price of the stock on the date of grant was $14.The option did not have a readily ascertainable fair market value.Howard exercises the option on July 7,2016,when the fair market value of the stock is $20.How much must she report as income at the date of exercise?
A)$-0-
B)$1,200
C)$2,400
D)$7,200
E)$10,800

Question

Quizplus · Accepted Answer

When Howard exercises the option, her income is equal to the difference between the fair market value of the stock at exercise and the option price. In this case, that is $20 - $8 = $12 per share. Howard has the option to acquire 200 shares, so her income from exercising the option is $12 x 200 = $2,400. Therefore, the correct answer is C.

On May 21,2014,Becker Corporation Granted Howard an Option to Acquire