Wilson Corporation granted an incentive stock option to Reva on January 1, two years ago. The option price was $300, and the FMV of the Wilson stock was also $300 on the grant date. The option allowed Reva to purchase 150 shares of Wilson stock. Reva exercised the option on August 1, this year, when the stock's FMV was $400. Unless otherwise stated, assume Reva is a qualifying employee. The
results of the above transactions to Reva will be
A) no income to Reva on the grant date or exercise date but there is an alternative minimum tax adjustment item to Reva of $15,000.
B) no income tax or alternative minimum tax effect for Reva.
C) ordinary income to Reva on the exercise date of $15,000.
D) capital gain to Reva on the exercise date of $15,000.
A) no income to Reva on the grant date or exercise date but there is an alternative minimum tax adjustment item to Reva of $15,000.
While no income is recognized on the grant date or the exercise date, $15,000 [($400 - $300) × 150 shares] is an adjustment for the AMT.
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