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?

A. $0.
B. $10,000.
C. $20,000.
D. $28,000.

Answer 1

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

Step-by-step explanation:

To calculate Tom's income or loss on the vesting date, we need to determine the value of the stocks at the time they vested and compare it to the cost basis of acquiring the shares.

The number of shares Tom received is 2,000, and the share price at the time was $10. Therefore, the cost basis of acquiring the shares is 2,000 x $10 = $20,000.

On the vesting date, the market price was $14 per share. So the value of the stocks at the time was 2,000 x $14 = $28,000.

Therefore, Tom's income on the vesting date is $28,000 - $20,000 = $8,000.