Question

Required information IThe following information applies to the questions displayed below) Mark received 10 ISOs (each option gives him the right to purchase 18 shares of Hendricks Corporation stock for $9 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 810

Answer 1

	Taxes Due
Grant Date	$0	Mark has no tax consequences on the grant date
Exercise Date	$0	* Mark has no regular income tax consequences on the exercise date, but recognizes $5400 for AMT
Sale Date	810	(calculated below)
Shares Acquired = ( 10 x 18)	180
Exercise price	5
Cash needed to exercise (180 x 5)	900
Market price of Shares = 180 x $35	6300
Bargain Element (for Amt)	5400
Amount Realized = 180 x $35	6300
Basis	-900
Long-term capital gain	5400
Marginal Tax Rate	x 15%
Tax due in year of sale	810