On November 19, 2014, Rex is granted a nonqualified stock option to purchase 100 shares of Tan Company. On that date, the stock is selling for $8 per share, and the option price is $9 per share. Rex exercises the option on August 21, 2015, when the stock is selling for $10 per share. Five months later, Rex sells the shares for $11.50 per share.
a. What amount is taxable to Rex in 2014?
b. What amount is taxable to Rex in 2015?
c. What amount and type of gain are taxable to Rex in 2016?
d. What amount, if any, is deductible by Tan Company in 2015?
e. What amount, if any, is recognized in 2015 if the stock is sold for $9.50 per share?