Mark received 8 ISOs (each option gives him the right to purchase 31 shares of H

Question

Mark received 8 ISOs (each option gives him the right to purchase 31 shares of Hendricks Corporation stock for $22 per share) at the time he started working for Hendricks Corporation five years ago when Hendricks’ stock price was $22 per share. Now that Hendricks’ share price is $44 per share, he intends to exercise all options and hold all of his shares for more than one year. Assume that more than a year after exercise, Mark sells the stock for $44 a share. (Round your answers to the nearest whole dollar amount. Enter all amounts as positive values. Leave no answers blank. Enter zero if applicable.)

What are Mark’s taxes due on the grant date, the exercise date, and the date he sells the shares, assuming his ordinary marginal rate is 30 percent and his long-term capital gains rate is 15 percent?

                                  Tax Due

Grant date

Excersice date

Sales date
     

What are Hendricks’ tax consequences on the grant date, the exercise date, and the date Mark sells the shares assuming its marginal tax rate is 25 percent?

                            Tax Due

Grant date

Excersice date

Sales date
    

a.

What are Mark’s taxes due on the grant date, the exercise date, and the date he sells the shares, assuming his ordinary marginal rate is 30 percent and his long-term capital gains rate is 15 percent?

Explanation / Answer

Mark has no tax consequences on the grant date. Mark has no regular income tax consequences on the exercise date, But recognizes $5456 for AMT , the calculations are as follows:

Description

Amount

Explanation

248

8*31

$22

$5456

1*2

$44

$10912

1*4

$5456

3-5

In the year of sale, Mark recognizes $5456 of long term capital gain and pay tax of $818.4, The calculations are as follows:

Description

Amount

Explanation

248

8*31

$44

$10912

1*2

$5456

$5456

1*4

15%

3-5

$818.4

Hendricks has no tax consequences on the grant date ,exercise or sale date because the options ate ISOs.

Description

Amount

Explanation

1. Share acquired

248

8*31

1. Exercise Price

$22

1. Cash needed to Exercise

$5456

1*2

1. Market Price

$44

1. Market value of Shares

$10912

1*4

1. Bargain Element(AMT Preference)

$5456

3-5

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