Martin Corporation Granted a Nonqualified Stock Option to Employee Caroline $$\begin{array} { | l | l | } \hline 2016 & 2017 \\\hline\$ 100,000 \text { ordinary income } & \$ 50,000 \text { LTCG } \\\hline \end{array}$$

question 52

Multiple Choice

Martin Corporation granted a nonqualified stock option to employee Caroline on January 1, 2013. The option price was $150, and the FMV of the Martin stock was also $150 on the grant date. The option allowed Caroline to purchase 1,000 shares of Martin stock. The option itself does not have a readily ascertainable FMV. Caroline exercised the option on August 1, 2016 when the stock's FMV was $250. If Caroline sells the stock on September 5, 2017 for $300 per share, she must recognize

• A) \[\begin{array} { | l | l | }
• \hline 2016 & 2017 \\
• \hline\$ 100,000 \text { ordinary income } & \$ 50,000 \text { LTCG } \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | l | }
• \hline 2016 & 2017 \\
• \hline0 & \$ 150,000 \text { LTCG } \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | l | }
• \hline 2016 & 2017 \\
• \hline\$ 100,000 \text { ordinary income } & \$ 50,000 \text { ordinary income } \\
• \hline
• \end{array}\]
• D) \(\begin{array}{|l|l|}
• \hline2016 & 2017 \\
• \hline 0 & \$ 150,000 \text { ordinary income }\\\hline
• \end{array}\)

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Definitions:

Revenue Recognition

The accounting principle that dictates the specific conditions under which income becomes recognized as revenue in the financial statements.

Secondary Characteristics

Refers to the additional properties or features of a financial instrument, entity, or market mechanism that support its primary functions.

Accounting Information

Data related to the financial transactions and status of an organization, used for analysis, decision making, and financial reporting.

Representational Faithfulness

A concept in accounting that assets and transactions are recorded and reported in a manner that accurately reflects economic reality.