M6-Employee Stock Options

Question 1

The employee receiving a nonqualified stock option must recognize as ordinary income the value of the option if traded on an established market. (true or false)

Answer 1

true

Question 2

For an incentive stock option, once exercised, the stock must be held at least two years after the grant date and at least one year after the exercise date. (true or false)

Answer 2

true

Question 3

The recipient of an incentive stock option will generally have to report compensation income in the year that the option is received. (true or false)

Answer 3

False

generally there is no recognition of compensation expense with an incentive stock option.

Question 4

The employer may recognize a deductible expense for a nonqualified stock option in the same year that the employee will recognize ordinary income (true or false).

Answer 4

True

Question 5

Employee stock purchase plans are a type of qualified stock option plan. (true or false)

Answer 5

true

Question 6

The stock option under an employee stock purchas plan exercise price may not be less than the LESSER of 95% of the FMV of the stock when granted or exercised. (true or false)

Answer 6

False it is 85%

Question 7

Stock options to employees under an employee stock purchase plan cannot be exercised more than 27 months after the grant date. (true or false)

Answer 7

true