Budget Solution Answer: Caroline must recognise the following incomes: 1. Long term capital gain of $50,000 as she sold the stock one year later at a price of $300 per share , while she exercised the stoock at a price of $250 per share. [(1000 shares*300)-(1000shares*250)] 2. And Oridinary Income of $100,000 as she exercised the option at the rate of $250 per share while the stok was granted at the rate of $150.[(1000shares*250)-(1000 shares*150)] .

1. Budget
Martin Corporation granted a nonqualified stock option to employee Caroline on January 1,
2011.  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 1,000 shares of Martin stock. The option
itself does not have a readily ascertainable FMV. Caroline exercised the option on August 1,
2013 when the stock's FMV was $250. If Caroline sells the stock on September 5, 2014 for $300
per share, she must recognize
2013
Solution
Answer:
Caroline must recognise the following incomes:
1. Long term capital gain of $50,000 as she sold the stock one year later at a price of $300 per
share , while she exercised the stoock at a price of $250 per share. [(1000 shares*300)-
(1000shares*250)]
2. And Oridinary Income of $100,000 as she exercised the option at the rate of $250 per share
while the stok was granted at the rate of $150.[(1000shares*250)-(1000 shares*150)]