Wilson Corporation Granted an Incentive Stock Option to Reva on January

question 39

Multiple Choice

Wilson Corporation granted an incentive stock option to Reva on January 1,two years ago.The option price was $300,and the FMV of the Wilson stock was also $300 on the grant date.The option allowed Reva to purchase 150 shares of Wilson stock.Reva exercised the option on August 1,this year,when the stock's FMV was $400.Unless otherwise stated,assume Reva is a qualifying employee.The results of the above transactions to Reva will be

• A)no income to Reva on the grant date or exercise date but there is an alternative minimum tax adjustment item to Reva of $15,000.
• B)no income tax or alternative minimum tax effect for Reva.
• C)ordinary income to Reva on the exercise date of $15,000.
• D)capital gain to Reva on the exercise date of $15,000.

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Definitions:

Forward Contract

A bespoke arrangement between two parties for acquiring or disposing of an asset at a designated price on an upcoming date.

Hedge

An investment made to reduce the risk of adverse price movements in an asset.

Speculative Forward Contract

A financial derivative used to speculate on the future price of an asset, involving an agreement to buy or sell the asset at a future date for a price determined today.

Fair Value Hedge

A risk management technique that uses financial instruments to mitigate the risk associated with changes in the fair value of an asset or liability.