Jackson Corporation Granted an Incentive Stock Option to Employee Caroline

question 73

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 1,2013,when the stock's FMV was $250.Unless otherwise stated,assume Caroline is a qualifying employee.If Caroline sells the stock on July 5,2014 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.

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Definitions:

Product Price

The amount of money required to purchase a good or service, typically influenced by factors such as cost of production, market demand, and competition.

Production Schedules

Plans that outline the timing and sequence of manufacturing processes to efficiently meet production goals and deadlines.

Profit-maximizing

This is an economic process where a firm determines the price and output level that returns the greatest profit.