Slugger Jones is the CEO of Diamond Baseball Equipment, Inc. (Diamond). It is a rapidly...
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Accounting
Slugger Jones is the CEO of Diamond Baseball Equipment, Inc. (Diamond). It is a rapidly growing publicly traded company. Slugger was awarded the following stock options from his company
Option Grant
Grant Date
Type
Exercise Price
# Shares
A
February 1, Year 1
ISO
$20
100
B
July 1, Year 2
NQSO
$25
100
C
August 1, Year 3
ISO
$30
100
D
May 1, Year 4
NQSO
$30
100
During Year 5, Slugger had the following transactions regarding the above stock options:
Option Grant
Date
Action
# Shares
Market Price on Action Date
A
February 1
Exercised
100
$42
A
February 1
Sold
100
$42
B
February 14
Exercised
100
$45
C
February 14
Exercised
100
$45
D
May 1
Exercised
100
$50
D
June 1
Sold
100
$60
Note: before answering these questions it can help to draw out a timeline.
How much income would Slugger have when his ISOs are granted?
What are the tax implications for the A options during Year 5?
What are the tax implications for the B options during Year 5?
What are the tax implications for the C options during Year 5?
What are the tax implications for the D options during Year 5?
Over the last five years, Slugger's salary has increased from $450,000 to $900,000 and his annual bonus has increased to $400,000 as the market value of the company has increased. What are some of the tax implications for the company and for Slugger?
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