Under a Nonqualified Stock Option (NQSO) Plan Which Is Granted

question 65

Multiple Choice

Under a nonqualified stock option (NQSO) plan which is granted to Damon on March 15, 2015, he may purchase 200 shares of stock from his employer at $15 per share. At that date, the option does not have a readily ascertainable fair market value. Eight months later on the date of exercise the fair market value of the stock is $20. On December 1, 2017, Damon sells 100 shares for $24 each. Which of the following would be the result of these transactions on the date of exercise and the date of sale?

• A)Ordinary income of $1,000 and a long-term capital gain of $400.
• B)Ordinary income of $1,200 and a long-term capital gain of $300.
• C)Ordinary income of $2,400 and a long-term capital gain of $0.
• D)Ordinary income of $1,000 and a short-term capital gain of $400.
• E)None of the above.

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Definitions:

Structural Unemployment

A form of unemployment caused by a mismatch between the skills that workers in the economy can offer and the skills demanded by employers.

Structural Unemployment

Refers to unemployment caused by structural changes in the economy such as technological advances, which create mismatches between the skills workers have and the skills needed for available jobs.

Demand Shifts

Demand shifts occur when the overall demand for a product or service increases or decreases due to changes in consumer preferences, income levels, prices of related goods, and other factors.

Technology Changes

The process of innovation and improvement in technology, affecting productivity, efficiency, and society's overall way of life.