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:

Money Supply

The total amount of money available in an economy at a specific time, including cash and deposits.

Opportunity Cost

Sacrificing the chance to gain from other alternatives by committing to one choice.

Real Interest Rate

The interest rate adjusted for inflation, representing the true cost of borrowing and the real yield to lenders or investors.

Equilibrium Interest Rate

The interest rate at which the demand for funds (borrowing) equals the supply of funds (saving), resulting in a stable market condition.