Question

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 per share) from his employer. At the time he started working the stock price was $11 per share. Now that the share price is $25 per share, he intends to exercise all of the options. Two years later Bad Brad sells the stock for $27 per share, what is Bad Brad's basis in his stock for purposes of calculating the gain or loss?

A. $6,000.
B. $9,000.
C. $15,000.
D. $16,200.

Answer 1

Bad Brad's basis in his stock for purposes of calculating the gain or loss is $10,200.

Step-by-step explanation:

Bad Brad's basis in his stock for purposes of calculating the gain or loss can be determined by subtracting the cost of the options from the total sale proceeds of the stock. Bad Brad received 20 NQOs, each allowing him to purchase 30 shares of stock for $10 per share. So, the total cost of the options is 20 * 30 * $10 = $6,000. Bad Brad exercised all of the options, purchasing 20 * 30 = 600 shares of stock. The total sale proceeds of the stock is the number of shares sold multiplied by the selling price, which is 600 * $27 = $16,200.

To determine the basis, we subtract the cost of the options ($6,000) from the total sale proceeds of the stock ($16,200), giving us a basis of $10,200. Therefore, Bad Brad's basis in his stock for purposes of calculating the gain or loss is $10,200.