Ruby Corporation Grants Stock Options to Iris on February 1,2014

question 88

Essay

Ruby Corporation grants stock options to Iris on February 1,2014.The options do not have a readily ascertainable value.The option price is $100,and the FMV of the Ruby stock is also $100 on the grant date.The option allows Iris to purchase 200 shares of Ruby stock.Iris exercises the option on August 1,2015,when the stock's FMV is $150.Iris sells the stock on December 5,2016 for $400.Determine the amount and character (i.e.ordinary,LTCG or STCG)of income recognized by Iris and the deduction allowed Ruby Corporation in 2014,2015 and 2016 under the following assumptions:
a.The stock option is an incentive stock option.
b.The stock option is a nonqualified stock option.

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Definitions:

Production Budget

An estimate of the total cost of production, including direct labor, materials, and overhead, for a specific period.

Beginning Inventory

The worth of merchandise ready for purchase at the beginning of a financial cycle.

Budgeted Sales

The projected amount of sales, in units or dollars, that a company plans to achieve in a specific period.

Production Budget

A forecast of the quantity of products that must be manufactured in a specified time period to meet customer demand and maintain inventory levels.