Problem:
Six years ago, Rollo Inc. granted a nonqualified stock option to Mrs. Jacques to buy 5,000 shares of Rollo stock at $15 per share for six years. At the date of grant, Rollo stock was selling on the AMEX for $14.75 per share. This year, Mrs. Jacques exercised the option when the price was $45.10 per share.
a. How much compensation income did Mrs. Jacques recognize in the year the option was granted?
b. How much compensation income did Mrs. Jacques recognize in the year she exercised the option?