Ruby Corporation Grants Stock Options to Iris on February 1,2013

question 24

Essay

Ruby Corporation grants stock options to Iris on February 1,2013. 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 1,2014,when the stock's FMV is $150. Iris sells the stock on December 5,2015 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 2013,2014 and 2015 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:

Dislodging

The act of removing or knocking something out of its position, often referring to a foreign object in the body or a component in machinery.

Ventilator Bundle

A set of evidence-based practices aimed at reducing ventilator-associated pneumonia and other complications in mechanically ventilated patients.

Ventilator-Associated Pneumonia

A type of lung infection that occurs in people who are on mechanical ventilation breathing machines in hospitals.

Chlorhexidine

An antiseptic used to clean the skin or mouth, preventing infections.