Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share.When the share price was $15 per share,she exercised all of her options.Eighteen months later she sold all of the shares for $20 per share.How much gain will Maren recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?
A)$0 gain and $0 tax.
B)$500 gain and $75 tax.
C)$500 gain and $175 tax.
D)$1,200 gain and $180 tax.The gain realized is $500 (100 shares × $20) less basis (100 shares × $15 exercise price) .The tax is calculated as follows: $500 × 15% (preferential rate) .

Question

Quizplus · Accepted Answer

Maren's gain is calculated as follows: She bought 100 shares (10 NQOs x 10 shares each) at $8 per share, totaling $800. She sold them for $20 per share, totaling $2,000. The gain is $2,000 - $800 = $1,200. However, the exercise price was $15, so the gain is $500 ($2,000 - $1,500). The tax on this gain at a 15% preferential rate is $75 ($500 x 15%).

Maren Received 10 NQOs (Each Option Gives Her the Right