Bill Was Awarded 3,000 Options; Each Option Allows Him to Purchase

question 31

Essay

Bill was awarded 3,000 options; each option allows him to purchase one share of BK's stock for $15. The stock is currently selling for $12 per share. Three years later, Bill exercises the options when the stock's selling price is $21 per share. Two years later, Bill sells the stock for $20 per share. What are Bill's and BK's tax consequences for these transactions if the options are:
a. Incentive stock options
b. Nonqualified stock options

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Definitions:

XYZ Affair

A diplomatic incident between France and the United States in 1797-98, which led to an undeclared naval war, caused by French demands for bribes from American negotiators.

Domestic Political Ramifications

The consequences or effects on a country's internal politics resulting from specific actions, policies, or events.

Republic's Ideology

A set of beliefs and values that emphasizes the welfare of the community over individual interests, supporting a form of government where power resides in elected individuals representing the citizen body.

Social Philosophies

Encompasses the ideologies and beliefs that societies hold, concerning social organization, governance, and relationships among individuals within a community.