Question

Tom recently received 2,000 shares of restricted stock from his employer, Independence Corporation, when the share price was $10 per share. Tom's restricted shares vested three years later when the market price was $14. Tom held the shares for a little more than a year and sold them when the market price was $20. What is the amount of Tom's income or loss on the vesting date?

1) $0
2) $10,000
3) $20,000
4) $28,000

Answer 1

Tom's income on the vesting date is $8,000.

none of the given choices ($0, $10,000, $20,000, $28,000) match the correct income of $8,000, the correct choice is not listed.

Step-by-step explanation:

To calculate Tom's income or loss on the vesting date, we need to consider the value of the shares at the time they vested. Tom received 2,000 shares of restricted stock when the share price was $10 per share, so the total value of the shares at that time was $10 * 2,000 = $20,000. When the shares vested three years later, the market price was $14 per share. As Tom held the shares for a little more than a year and sold them when the market price was $20 per share, the total value of the shares at the vesting date was $14 * 2,000 = $28,000. So, Tom's income on the vesting date is $28,000 - $20,000 = $8,000.