Tobey Receives 1,000 Shares of YouDog! Stock as Part of His

question 11

Multiple Choice

Tobey receives 1,000 shares of YouDog! stock as part of his compensation package.Tobey's employment contract with YouDog!,Inc.,states that if he leaves before completion of three years of employment,he will forfeit the stock.The stock currently has a fair market value of $12 per share.Which of the following statements regarding Tobey's choices is not true?

• A)Tobey does not have to recognize any income from receiving the stock until his rights to the stock are fully vested.
• B)Tobey must report $12,000 as income due to the receipt of the stock in the current year.
• C)Tobey may elect to report the $12,000 FMV of the stock as ordinary income in the current year.
• D)If Tobey elects to report $12,000 as income in the current year and the stock price falls to $5 per share when his rights to the stock are vested,Tobey is not allowed to deduct a loss.

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Definitions:

Linear

A term used to describe something that forms a straight line or a process that proceeds in steps of equal increments.

Downward-Sloping

A term often used to describe a curve or line on a graph that decreases from left to right, indicating a negative relationship between two variables.

Perfectly Elastic

Describes a situation in which the quantity demanded or supplied responds infinitely at a particular price level.

Income Elasticity

A measure of how the demand for a good or service changes in response to changes in consumers' income.