On July 1, 2017, Amos Corporation granted nontransferable, nonqualified stock options to certain key employees as additional compensation. The options permit the purchase of 20,000 shares of Amos’s $1 par common stock at a price of $32 per share. On the grant date, the stock’s market value was $32 per share. The options were exercisable beginning July 1, 2021, and expire on July 1, 2025. On February 3, 2023, when the stock was selling for $53 per share, all options were exercised. Amos's tax rate is 35%. Amos has a December 31 year end for financial reporting purposes. Required:
1. How much compensation expense should Amos record in 2017 and 2018 if the options are worth $15 per share on the grant date?
2. Compute the tax benefit that Amos will receive in 2023 when the employees exercise the options.

1. Total compensation expenses = 20,000 * $15 = $300,000

Vesting period (From 2017-2021) = 4 years

Annual compensation expenses = Total compensation expenses / 4

Annual compensation expenses = $300,000 / 4 years

Annual compensation expenses = $75,000

a. Compensation expenses 2017 = $75,000/2

Compensation expenses 2017 = $37,500

b. Compensation expenses 2018 = $75,000

2. The spread between the grant price and exercise price is allowed as base of tax benefit.

Tax benefit = [20,000 * (53-32)] * 35%

Tax benefit = [20,000 * 21] * 35%

Tax benefit = $420,000 * 35%

Tax benefit = $147,000

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