Question

mark received 10 ISOs (each option gives him the right to purchase 14 shares of Hendricks corporation stock for $6 per share) at the time he started working for Hendricks corporation five years ago when Hendricks's stock price was $5 per share. now that Hendricks's share price is $35 per share, mark intends to exercise all of his 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 $35 a share. (enter all amounts as positive values. leave no answers blank. enter zero if applicable. )

(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 32 percent and his long-term capital gains rate is 15 percent?

grant date
exercise date
sale date

(b) what are Hendricks's tax consequences on the grant date, the exercise date, and the date mark sells the shares, assuming its marginal tax rate is 21 percent?

grant date
exercise date
sale date

I need help please can you type it out thank you

Answer 1

Part A

Mark’s tax consequences on the grant date	No tax consequences
Mark’s tax consequences on the exercise date	No regular income tax consequences, but recognizes $4200 for AMT
Mark’s tax consequences on the date of sale	recognizes $4200 of long-term capital gain and pays tax of $630

Description	Amount	Explanation
(1) Shares acquired	140	(10*14 shares)
(2) Exercise price	5
(3) Cash needed to exercise	700	(1) × (2)
(4) Market price	$35
(5) Market value of shares	4900	(1) × (4)
(6) Bargain Element(AMT preference)	4200	(5) – (3)

Description	Amount	Explanation
(7) Shares acquired with NQOs	140	(1)
(8) Market price at sale	$35
(9) Amount Realized	4900	(7) × (8)
(10) Basis	700	(3)
(11) Long-term capital gain	4200	(9) - (10)
(12) Marginal Tax Rate	15%	(5) – (3)
Tax due in year of sale	630	(11) × (12)

Part B

Hendricks’s tax consequences on the grant date	No tax consequences
Hendricks’s tax consequences on the exercise date	No tax consequences
Hendricks’s tax consequences on the date of sale	No tax consequences

There are no tax consequences as the options are ISOs.