Grant Date January 3, 2017

• Madison is granted 2,000 nonqualified stock options (NONQUALS) where each option permits her to acquire one share of Lubbock Corporation common stock.
• Option (strike) price Madison must pay for each option = $15
• All options vest 100% by year end 2018.
• Lubbock Corporation stock FMV as of the grant date: $15/share

Exercise Date: June 1, 2019

• Madison exercises all 2,000 of her options to acquire 2,000 shares of Lubbock Corporation common stock when the FMV of the stock = $22/share.

Sale Date: July 1, 2020

• Madison sells all 2,000 shares of Lubbock Corporation stock for $29/share.

-------------------------------------------------------------------------------------------------------------------------------------

Case Assignment (please show detailed calculations where relevant):

1. What are the tax consequences to Madison on the grant date?
2. What are the tax consequences to Madison on the exercise date?
   1. What is her bargain element per share upon exercise?
   2. How much compensation income does Madison report in 2019? Please show your calculations.
   3. Are there any tax consequences for Lubbock Corporation in the year of exercise? Please be specifi
   4. What is Madisons total tax basis in her 2,000 shares?
3. Calculate Madisons gain or loss on the sale date. Please show your calculations.