Question

Assignment Problem Three - 8 (Employee Stock Options) Floretta Sutphin has worked for several years as an employee of a Canadian public company. In 2018, Floretta was granted options to acquire 2,000 of the company’s shares at a price of $19 per share. At that time, the shares were trading at $17 per share.
In February 2019, with the shares trading at $27 per share, Floretta exercises 1,000 of the options. During the remainder of the year, the shares continue to increase in value, reaching a value of $32 per share in December. At this time, Floretta exercises the remaining 1,000 options.
In the second quarter of 2020, reflecting poor earnings results during the first quarter of the year, the value of the shares declines to $30 per share. At this point, Floretta sells all 2,000 of her shares at this price.
Required: A. Indicate the tax effect of the transactions that took place during each of the years 2018, 2019, and 2020. Your answer should include the effect on both Net Income For Tax Purposes and Taxable Income. Where relevant, identify these effects separately.
B. How would your answer change if the shares had been trading at $22 per share at the time that the options were issued in 2018?
C. How would your answers to both Part A and Part B change if Floretta’s employer was a Canadian controlled private company?
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Answer 1

Answer:

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answer