Jackson Corporation Granted an Incentive Stock Option to Employee Caroline

question 64

Multiple Choice

Jackson Corporation granted an incentive stock option to employee Caroline on January 1,two years ago.The option price was $150,and the FMV of the Jackson stock was also $150 on the grant date.The option allowed Caroline to purchase 160 shares of Jackson stock.Caroline exercised the option on August 1,2012,when the stock's FMV was $250.Unless otherwise stated,assume Caroline is a qualifying employee.If Caroline sells the stock on July 5,2013 for $400 per share,she must recognize

• A)long-term capital gain of $40,000 in the year of sale.
• B)long-term capital gain of $24,000 in the year of sale.
• C)ordinary income of $16,000 on the exercise date and a long-term capital gain of $24,000 in the year of sale.
• D)ordinary income of $16,000 and a short-term capital gain of $24,000 in the year of sale.

---

Definitions:

Solar Wind

Solar Wind is a stream of charged particles, including electrons and protons, ejected from the upper atmosphere of the sun, affecting the entire solar system.

Comet

An icy, small Solar System body that, when passing close to the Sun, warms and begins to release gases, a process called outgassing, creating a visible atmosphere or coma, and sometimes a tail.

Dwarf-planet

A celestial body resembling a small planet but lacking certain technical criteria, such as having cleared its orbit of other debris.

Elliptical

Having the shape of a flattened circle or oval.