Martin Corporation Granted an Incentive Stock Option to Employee Caroline

question 249

Multiple Choice

Martin Corporation granted an incentive stock option to employee Caroline on January 1, 2012. 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 160 shares of Martin stock. Caroline exercised the option on August 1, 2016, when the stock's FMV was $250. Unless otherwise stated, assume Caroline is a qualifying employee. If Caroline sells the stock on September 5, 2018, for $350 per share, she must recognize (ignore alternative minimum tax)

• A) 0. No gain or loss is recognized at exercise or sale with incentive stock options.
• B) ordinary income of $16,000 on the exercise date and a long- term capital gain of $16,000 in 2018.
• C) long- term capital gain of $32,000 in 2018.
• D) long- term capital gain of $16,000 in 2018.

---

Definitions:

Public Domain

Intellectual property and content that are not protected by copyright, allowing the public free access and use.

Copyright

The exclusive legal right given to an originator or an assignee to print, publish, perform, film, or record literary, artistic, or musical material, and to authorize others to do the same.

Fair Use Doctrine

A legal principle allowing limited use of copyrighted material without permission for purposes such as criticism, comment, news reporting, teaching, scholarship, or research.

Statutory Factors

Legal criteria or standards specified in statutes that must be considered in judicial decisions or administrative processes.