Jackson Corporation Granted an Incentive Stock Option to Employee Caroline

question 488

Multiple Choice

Jackson Corporation granted an incentive stock option to employee Caroline on January 1, two years ago. The option price was $150, and the FMV of the Jackson stock was also $150 on the grant date. The option allowed Caroline to purchase 160 shares of Jackson stock. Caroline exercised the option on August 1, 2017, when the stock's FMV was $250. Unless otherwise stated, assume Caroline is a qualifying employee. If Caroline sells the stock on July 5, 2018, for $400 per share, she must recognize

• A) long- term capital gain of $24,000 in the year of sale.
• B) long- term capital gain of $40,000 in the year of sale.
• C) ordinary income of $16,000 on the exercise date and a long- term capital gain of $24,000 in the year of sale.
• D) ordinary income of $16,000 and a short- term capital gain of $24,000 in the year of sale.

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Definitions:

Progressive

Pertaining to a concept, disease, or condition that advances in severity or unfolds over time.

Weakness

Weakness refers to a lack of physical or muscle strength and the feeling of requiring more effort to move your limbs or perform tasks.

Ataxia

A neurological sign consisting of lack of voluntary coordination of muscle movements.

Coordination

The ability to use different parts of the body together smoothly and efficiently.