Ruby Corporation Grants Stock Options to Iris on February 1,2012

question 53

Essay

Ruby Corporation grants stock options to Iris on February 1,2012.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 1,2013,when the stock's FMV is $150.Iris sells the stock on December 5,2014 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 2012,2013 and 2014 under the following assumptions:
a.The stock option is an incentive stock option.
b.The stock option is a nonqualified stock option.

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Definitions:

Financial Investment

The allocation of resources into financial assets, such as stocks, bonds, or real estate, with the expectation of receiving future returns.

Purchases of Services

Transactions where buyers acquire services rather than tangible goods from sellers.

Net Exports Component

The difference between a country's total exports of goods and services and its total imports, part of the gross domestic product calculation.

Consumption Component

The part of total economic output that is used by individuals and households for personal needs and wants.