Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2016, when the option price and FMV of the Bell stock is $80. The option entitles Peggy to buy 10 shares of Bell stock. Peggy exercises the option and acquires the stock on April 1, 2018, when the stock’s FMV is $100. Peggy, while still employed by the Bell Corporation, sells the stock on May 1, 2020, for $120 per share.
a. What are the tax consequences to Peggy and Bell Corporation on the following dates: January 1, 2016; April 1, 2018; and May 1, 2020? (Assume all incentive stock option qualification requirements are met.)
b. How would your answer to Part a change if Peggy instead sold the Bell stock for $130 per share on May 1, 2018?