Jackson Corporation Granted an Incentive Stock Option to Employee Caroline

question 117

Multiple Choice

Jackson Corporation granted an incentive stock option to employee Caroline on January 1,two years ago.The option price was $150,and the FMV of the Jackson stock was also $150 on the grant date.The option allowed Caroline to purchase 160 shares of Jackson stock.Caroline exercised the option on August 1,2015,when the stock's FMV was $250.Unless otherwise stated,assume Caroline is a qualifying employee.If Caroline sells the stock on July 5,2016 for $400 per share,she must recognize

• A)long-term capital gain of $40,000 in the year of sale.
• B)long-term capital gain of $24,000 in the year of sale.
• C)ordinary income of $16,000 on the exercise date and a long-term capital gain of $24,000 in the year of sale.
• D)ordinary income of $16,000 and a short-term capital gain of $24,000 in the year of sale.

---

Definitions:

Effectors

Organs or cells that act in response to a stimulus, executing the required response in motor functions or other activities.

Nodes of Ranvier

Gaps in the myelin sheath of nerve fibers, which facilitate the rapid conduction of nerve impulses along the neuron.

Nerve Impulses

Electrical signals that travel along the axons of neurons, enabling communication within the nervous system.

Myelin Sheath

The protective coating around nerve fibers in the brain and spinal cord that helps increase the speed at which electrical impulses propagate along the nerve cells.