In year 1, Incentive Corporation grants Jessica, an employee, an 1SO to buy 1,000 shares of Incentive stock for $28 per share at any time during the next seven years. On the grant date, Incentive stock is selling for $26 per share. In year 5, when the stock is selling for $38 per share, Jessica exercises the option and pays $28,000 ($28 strike price x 1,000 shares) to the corporation for the 1,000 shares of stock. Jessica holds these shares until year 8, when she sells them for $128,000. How much income or gain does Jessica recognize and how much can Incentive Corporation deduct, respectively?

7. John Decem a. No . CN Jessica exercises the option and pays $28,000 (S28 strike price 1,000 shares) to the corporation for the 1,000 shares of stock. Jessica holds these shares until year 8. when she sells them for $128,000. How much income or gain does Jessica recognize and how much can Incentive Corporation deduct, respectively a. No income and no deduction b. S26,000 ordinary income at date of grant and S26,000 deduction at date of grant c. S10,000 ordinary income when options are exercised and $10,000 deduction when options are exercised d. S100,000 capital gain when options are sold and no deduction e. None of these answers. CA