On July 1, 20X1, 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, 20X5, and expire on July 1, 20X9. On February 3, 20X7, when the stock was selling for $53 per share, all options were exercised. Amos’s tax rate is 21%. Amos has a December 31 year-end for financial reporting purposes.

Required:

1. How much compensation expense should Amos record in 20X1 and 20X2 if the options are worth $15 per share on the grant date?

2. Compute the tax benefit that Amos will receive in 20X7 when the employees exercise the options.