Problem:
On July 1, 2005 Austin Company granted Harry Ross, an employee, an option to buy 500 shares of Austin common stock at $30 per share. The option was exercisable for five years from the date of the grant. Ross exercised his option on October 1, 2005 and sold his shares on December 2, 2005. The quoted market prices for Austin common stock during the year were:
July $30 per share
October 1 $35 per share
December $37 per share
Required:
How much compensation expense should Austin recognize in 2005 as a result of the option granted to Ross?