Yvonne Exercises Incentive Stock Options (ISOs) for 100 Shares of Apple

question 29

Multiple Choice

Yvonne exercises incentive stock options (ISOs) for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21, 2017, when the fair market value is $120 per share. She holds the stock for only two years and sells the shares for $115 per share. Determine the recognized gain on the sale and classify it as capital or ordinary.

• A)$2,000 ordinary income and $2,000 STCG.
• B)$2,000 ordinary income and $2,000 LTCG.
• C)$4,000 ordinary income.
• D)$1,500 LTCG.
• E)None of the above.

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Definitions:

Quick Ratio

A liquidity indicator that evaluates a company's ability to pay its current liabilities without relying on the sale of inventory, calculated as (current assets - inventory) / current liabilities.

Bad Debt Expense

Expense associated with estimated uncollectible accounts receivable.

DuPont Model

A financial analysis framework that breaks down return on equity into three components: profit margin, asset turnover, and financial leverage.