Martin Corporation Granted a Nonqualified Stock Option to Employee Caroline $$\begin{array} { | l | l | } \hline 2018 & 2019 \\\hline 100,000 \text { ordinary income } & \$ 50,000 \text { LTCG } \\\hline\end{array}$$

question 10

Multiple Choice

Martin Corporation granted a nonqualified stock option to employee Caroline on January 1,2014.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 1,2018,when the stock's FMV was $250.If Caroline sells the stock on September 5,2019,for $300 per share,she must recognize

• A) \[\begin{array} { | l | l | }
• \hline 2018 & 2019 \\
• \hline 100,000 \text { ordinary income } & \$ 50,000 \text { LTCG } \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | l | }
• \hline 2018 & 2019 \\
• \hline 0 & \$ 150,000 \text { LTCG } \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | l | }
• \hline 2 018 & 2019 \\
• \hline 100,000 \text { ordinary income } & \$ 50,000 \text { ordinary income } \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | l | }
• \hline 2018 & 2019 \\
• \hline 0 & \$ 150,000 \text { ordinary income } \\
• \hline
• \end{array}\]

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Definitions:

Invisible Hand

A term coined by Adam Smith to describe the self-regulating nature of the marketplace, where individual self-interests unintentionally benefit society as a whole.

Budgets

Financial plans detailing projected income and expenses over a specific period.

Public-sector Managers

Individuals responsible for directing, controlling, and overseeing entities in the government segment that provide public services.

Economically Efficient

A state in which resources are allocated in a way that maximizes the production of goods and services at the lowest cost, achieving optimal distribution of resources.