Mirasol Corporation Granted an Incentive Stock Option to Employee Josephine

question 2

Multiple Choice

Mirasol Corporation granted an incentive stock option to employee Josephine two years ago.The option price was $150 and the FMV of the Mirasol stock was also $150 on the grant date.The option allowed Josephine to purchase 160 shares of Mirasol stock.Josephine exercised the option this year when the stock's FMV was $250.Unless otherwise stated,assume Josephine is a qualifying employee.The results of the above transactions to Mirasol Corporation will be

• A)no compensation deduction.
• B)a compensation deduction of $16,000 on the grant date.
• C)an alternative minimum tax adjustment item of $16,000 on the exercise date.
• D)a compensation deduction of $16,000 on the exercise date.

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Definitions:

Perpetuity Formulas

Mathematical equations used to calculate the value of payments or cash flows that continue indefinitely.

Terminal Values

The estimated value of an asset at the end of its useful life or an investment at the end of a forecast period.

Opportunity Costs

The cost of foregoing the next best alternative when making a decision, representing the benefits an individual, investor, or business misses out on when choosing one alternative over another.

Depreciation

The allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value over time.