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:

Unit Variable Costs

The cost associated with producing one additional unit of product, including materials, labor, and other variable expenses.

Break-even Point

The financial state in which total costs and total revenues are equal, meaning no net loss or gain is incurred by the business.

Variable Costs

Costs that change directly and proportionally with the level of production or business activity, such as materials and labor.

Contribution Margin

The amount by which sales revenue exceeds variable costs, indicating the contribution towards covering fixed costs and generating profit.