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Business Taxation - Rollo Inc

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Six years ago, Rollo Inc., gained a nonqualified stock option to Mrs. Jacques to buy 5,000 shares of Rollo stock per $15 per share for six years. At the date of grant, Rollo stock was selling on the AMEX for $14.75 per share. This year, Mr. Jacques exercised the option when the price was $45.10 per share.

1. How much compensation income did Mrs. Jacques recognize in the year the option was granted?
2. How much compensation income did Mrs. Jacques recognize in the year she exercised the option?
3. Did Rollo have any tax consequences from the option in the year of grant or in the year of exercise?

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The solution provides full explanations and instructions for the problem, including brief explanations and calculation. Two references are included.

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a. If you participated in an employee stock purchase plan, you do not include any amount in your gross income as a result of the grant or exercise of your option to purchase stock. Only when you sell ...

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