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Ruby Corporation grants stock options to Iris on February 1,2016.The options do not have a readily ascertainable value.The option price is $100,and the FMV of the Ruby stock is also $100 on the grant date.The option allows Iris to purchase 200 shares of Ruby stock.Iris exercises the option on August 1,2017,when the stock's FMV is $150.Iris sells the stock on December 5,2018 for $400.Determine the amount and character (i.e.ordinary,LTCG or STCG)of income recognized by Iris and the deduction allowed Ruby Corporation in 2016,2017 and 2018 under the following assumptions:
a.The stock option is an incentive stock option.
b.The stock option is a nonqualified stock option.
Enforceable
Refers to a rule, obligation, or agreement that can be legally imposed or carried out.
Illegal Contract
An agreement that is void and unenforceable by law due to its illegal subject matter or terms.
Legislation
The process of making or enacting laws.
Void
A term describing a legal document that is null and has no legal force or effect.
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