Rosa exercises ISOs for 100 shares of Copper Corporation common stock at the option price of $100 per share on May 21, 2016, when the fair market value is $120 per share. She sells the 100 shares of common stock three and one-half years later for $140.
a. Calculate the long-term capital gain and the ordinary income on the sale.
b. Assume that Rosa holds the stock only seven months and sells the shares for $140 per share. Calculate the capital gain and ordinary income on the sale.
c. In (b), what amount can Copper Corporation deduct? When?
d. Assume instead that Rosa holds the stock for two years and sells the shares for $115 per share. Calculate any capital gain and ordinary income on this transaction.
e. In (a), assume that the options are nonqualified stock options with a nonascertainable fair market value on the date of the grant. Calculate the long-term capital gain and ordinary income on the date of the sale.
f. In (e), assume that each option has an ascertainable fair market value of $10 on the date of the grant and that no substantial risk of forfeiture exists. Calculate the long-term capital gain and the ordinary income on the date of the sale.