On November 19, 2018, Rex Is Granted a Nonqualified Stock

question 51

Essay

On November 19, 2018, Rex is granted a nonqualified stock option to purchase 100 shares of Tan Company.On that date, the stock is selling for $8 per share, and the option price is $9 per share.Rex exercises the option on August 21,
2019, when the stock is selling for $10 per share.Five months later, Rex sells the shares for $11.50 per share.
a.What amount is included in Rex's gross income in 2018?
b.What amount is included in Rex's gross income in 2019?
c.What amount and type of gain is recognized by Rex in 2020?
d.What amount, if any, is deductible by Tan Company in 2019?
e.What amount, if any, is recognized in 2019 if the stock is sold for $9.50 per share?

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Definitions:

Aggregate Demand

The total demand for all goods and services in an economy at different price levels, including consumption, investment, government spending, and net exports.

Price Level

This refers to the average of current prices across the entire spectrum of goods and services produced in the economy.

Spending Multiplier

The ratio of a change in output (economic activity) to a change in spending, indicating the ripple effect of an initial expenditure through the economy.

Aggregate Demand Curve

A graphical representation of the total demand for goods and services in an economy at various price levels, holding all else constant.