Under a Nonqualified Stock Option (NQSO)plan Which Is Granted to Damon

question 89

Multiple Choice

Under a nonqualified stock option (NQSO) plan which is granted to Damon on March 15,2014,he may purchase 200 shares of stock from his employer at $15 per share.At that date,the option does not have a readily ascertainable fair market value.Eight months later on the date of exercise the fair market value of the stock is $20.On December 1,2016,Damon sells 100 shares for $24 each.Which of the following would be the result of these transactions on the date of exercise and the date of sale?

• A)Ordinary income of $1,000 and a long-term capital gain of $400.
• B)Ordinary income of $1,200 and a long-term capital gain of $300.
• C)Ordinary income of $2,400 and a long-term capital gain of $0.
• D)Ordinary income of $1,000 and a short-term capital gain of $400.
• E)None of the above.

---

Definitions:

Fair Deal

A set of domestic reforms proposed by U.S. President Harry S. Truman in 1949, including civil rights, healthcare, and education improvements.

Taft-Hartley Act

A 1947 U.S. federal law that restricted the activities and power of labor unions, formally known as the Labor Management Relations Act.

Operation Wetback

A 1950s U.S. immigration law enforcement initiative aimed at the mass deportation of undocumented Mexican immigrants.

Universal Declaration of Human Rights

A foundational document adopted by the United Nations in 1948, outlining the rights and freedoms entitled to all human beings.