Problem:
Six years ago, Corporation granted a nonqualified stock option to employee to buy 5,000 shares of Rollo stock at $15 per share for six years. At the date of grant, Corp. stock was selling on the AMEX for $14.75 per share. This year, employee exercised the option when the price was $45.10 per share.
a. How much compensation income did employee recognize in the year the option was granted?
b. How much compensation income did employee recognize in the year he exercised the option?
c. Did Rollo have any tax consequences from the option in the year of grant or in the year of exercise?