Question

Salem Corporation granted a nonqualified stock option to employee Andi on January 1, 2015. The option...

Salem Corporation granted a nonqualified stock option to employee Andi on January 1, 2015. The option price was $175, and the FMV of the Salem stock was also $175 on the grant date. The option allowed Andi to purchase 500 shares of Salem stock. The option itself does not have a readily ascertainable FMV. Andi exercised the option on July 1, 2018, when the stock's FMV was $225. If Andi sells the stock on August 1, 2019, for $250 per share, she must recognize

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans:

1. Long term capital gain:

[(500 shares*250)-(500 shares*225)]

= $125,000 - $ 112,500

= $12,500

As she sold the stock one year later at a price of $250 per share , while she exercised the stock at a price of $225 per share.

2. Ordinary Income:

(500 shares*225)-(500 shares*175)]

= $ 112,500- 87,500

= $25,000

as she exercised the option at the rate of $225 per share while the stock was granted at the rate of $175.

Salem must recognize Ordinary Income of $25,000 and LTCG of $12,500

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Martin Corporation granted an incentive stock option to employee Caroline on January 1, 2013. The option...
Martin Corporation granted an incentive stock option to employee Caroline on January 1, 2013. The option price was $150, and the FMV of the Martin stock was also $150 on the grant date. The option allowed Caroline to purchase 160 shares of Martin stock. Caroline exercised the option on August 1, 2017, when the stock's FMV was $250. Unless otherwise stated, assume Caroline is a qualifying employee. If Caroline sells the stock on September 5, 2019, for $350 per share,...
Wilson Corporation granted an incentive stock option to Reva on January 1, 2018. The option price...
Wilson Corporation granted an incentive stock option to Reva on January 1, 2018. The option price was $300, and the FMV of the Wilson stock was also $300 on the grant date. The option allowed Reva to purchase 150 shares of Wilson stock. Reva exercised the option on August 1, 2020, when the stock's FMV was $400. Reva sells the stock on December 5, 2021 for $450 per share. Determine the amount and character(i.e., ordinary, LTCG or STCG) of income...
This year, Haven Corporation granted a nonqualified stock option to Olivia to buy 5,000 shares of...
This year, Haven Corporation granted a nonqualified stock option to Olivia to buy 5,000 shares of Haven stock for $20 for five years. At date of grant, Haven stock was selling on the Nasdaq for $19 per share. For financial statement purposes, Haven recorded $16,500 compensation expense for the estimated value of the option. How much income must Olivia recognize as a result of the grant of the option? Can Haven deduct the $16,500 compensation expense on this year's tax...
On November 1, 2017, Sunland Company adopted a stock-option plan that granted options to key executives...
On November 1, 2017, Sunland Company adopted a stock-option plan that granted options to key executives to purchase 21,900 shares of the company’s $9 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $50, and the fair value option-pricing model determines the...
Exercise 16-10 On November 1, 2017, Pharoah Company adopted a stock-option plan that granted options to...
Exercise 16-10 On November 1, 2017, Pharoah Company adopted a stock-option plan that granted options to key executives to purchase 37,500 shares of the company’s $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model...
On March 1 of year 0, Judy was granted an incentive stock option (ISO) to purchase...
On March 1 of year 0, Judy was granted an incentive stock option (ISO) to purchase 50 shares of her employer’s stock for $10 per share. The FMV of the stock on the date of the grant was $12 per share. On May 1 of year 1, Judy exercised her option when the stock was selling for $15 per share. On July 1 of year 2, Judy sold all of the shares for $20 per share. What amount and character...
On July 1, 2018, Stellar Company adopted a stock option plan that granted options to key...
On July 1, 2018, Stellar Company adopted a stock option plan that granted options to key executives to purchase 100,000 shares of the company’s $1 par value common stock. The options were granted on January 1, 2019, and were exercisable 3 years after the date of grant if the grantee was still an employee of the company. The options expired 4 years from date of grant. The option price was set at $66, and the fair value option pricing model...
On January 1, 2021, Marigold Corp. granted Tim Telfer, an employee, an option to buy 5100...
On January 1, 2021, Marigold Corp. granted Tim Telfer, an employee, an option to buy 5100 shares of Marigold Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $32700. Telfer exercised his option on September 1, 2021, and sold his 5100 shares on December 1, 2021. Quoted market prices of Marigold Co. stock during 2021 were January 1 $24...
On January 1, 2016, Webber Company granted 77,300 stock options to certain executives. The options are...
On January 1, 2016, Webber Company granted 77,300 stock options to certain executives. The options are exercisable no sooner than December 31, 2018, and expire on January 1, 2022. Each option can be exercised to acquire one share of $3 par common stock for $7. An option-pricing model estimates the fair value of the options to be $3 on the date of grant. If unexpected turnover in 2017 caused the company to estimate that 10% of the options would be...
On November 1, 2020, Whispering Company adopted a stock-option plan that granted options to key executives...
On November 1, 2020, Whispering Company adopted a stock-option plan that granted options to key executives to purchase 33,900 shares of the company’s $10 par value common stock. The options were granted on January 2, 2021, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT