Should include the effect on both net income-taxable income

Reference no: EM133261832

Assignment:

Employee Stock Options

Floretta Sutphin has worked for several years as an employee of a Canadian public company. In 2020, 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 2021, with the shares trading at $27 per share, Floretta exercised 1,000 of the options.

During the remainder of that year, the shares continued to increase in value, reaching a value of $32 per share in December 2021. At that time, Floretta exercised the remaining 1,000 options. In the second quarter of 2022, 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 2020, 2021, and 2022. Your answer should include the effect on both net income 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 the options were issued in 2020?

C. How would your answers to both Part A and Part B change if Floretta's employer was a Canadian controlled private corporation (CCPC)?

Reference no: EM133261832

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