In 2013, BT granted a non qualified stock option to Ms. Pearl to buy 500 shares of BT stock at $20 per share for five years. At date of grant, BT stock was trading on Nasdaq for $18.62 per share. In 2018, Ms. Pearl exercised the option when BT's stock was trading at $31.40 per share.

a. How much income did Ms. Pearl recognize in 2013 and 2018 because of the stock option?

b. Compute Ms. Pearl's basis in the 500 shares.

c. What are the tax consequences of the stock option to BT in 2013 and 2018?

Assume the taxable year is 2018.