Mirasol Corporation Granted an Incentive Stock Option to Employee Josephine

question 72

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)a tax preference item of $16,000 on the exercise date.
• D)a compensation deduction of $16,000 on the exercise date.

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Definitions:

Compounded Annually

The method of calculating interest in which the interest earned each year is added to the principal, so that the balance doesn't merely grow, it grows at an increasing rate.

Monthly Payments

Regular payments made each month towards the repayment of a loan or financial obligation.

Finance

The management of money and other assets by individuals, companies, or governments.

Compounded Monthly

A method where interest is calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a loan or deposit, recalculated every month.