In 2008,Merlin received the right to acquire 1,200 shares of Noble Corporation stock through the company's incentive stock option plan at an exercise price of $17 per share.On January 4,2012,Merlin exercises the option when the fair market value of the stock is $22 per share.Which of the following is(are)correct statements?
I.Noble can deduct $6,000 as compensation expense in 2012.
II.Merlin does not recognize any income but must include $6,000 as a tax preference item in computing his alternative minimum taxable income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Quizplus · Accepted Answer

Merlin does not recognize any income upon exercising the incentive stock option, but the difference between the exercise price and the fair market value ($6,000) is a tax preference item for calculating alternative minimum taxable income. Noble cannot deduct this amount as a compensation expense.

In 2008,Merlin Received the Right to Acquire 1,200 Shares of Noble