On June 1, 2018, Sutton Corporation grants Anne an option under its nonqualified stock option plan to acquire 300 shares of the company's stock for $12 per share. The fair market price of the stock on the date of grant is $18. The fair market value of the option is $4. How much must Anne report as income at the date of grant?
A)$-0-
B)$1,200
C)$1,800
D)$3,600
E)$5,400

Question

Quizplus · Accepted Answer

The correct answer is B: $1,200. The difference between the fair market value of the stock and the option price is $6 per share ($18 - $12). The total value of the option is $1,800 (300 shares x $6). However, since the option is nonqualified, Anne must report as income only the spread between the fair market value of the option and the option price, which is $4 per share. Therefore, Anne must report $1,200 (300 shares x $4) as income at the date of grant.

On June 1, 2018, Sutton Corporation Grants Anne an Option