On January 1, 2016, American Corporation grants a stock option to Kay, an employee.

On January 1, 2016, the FMV of the American stock is $10. The option price is also $10.

The option permits Kay to purchase 1,000 shares of American stock.

On June 30, 2018, Kay bought 1,000 shares, when the stock's FMV was $40. Her stock was fully vested.

On January 1, 2020, Kay sold the 1,000 shares of American stock, for $50 per share

A.) Assume this is an INCENTIVE stock option. How much ordinary income does Kay recognize for regular income tax purposes?

B.) Assume this is an INCENTIVE stock option. How much ordinary income does Kay recognize when computing the alternative minimum tax?

C.) Assume this is an INCENTIVE stock option. How much capital gain does Kay recognize when computing her regular income tax in the year of sale?

D.) Assume this is an INCENTIVE stock option. How much compensation expense does American Corporation deduct related to Kay’s stock transactions?

Answer rating: 100% (QA)

a solution 1 In 2018 the year in which the option was encerci... View the full answer