On July 1, 2004, 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, 2004 and sold his shares on December 2, 2004. The quoted market prices for Austin common stock during the year were:

Required:
1. How much compensation expense should Austin recognize in 2004 as a result of the option granted to Ross if it follows APB Opinion No. 25?
2. How much compensation expense should Austin have recognized in 2004 if it follows the fair value method in SFAS No. 123 and the options were worth $2 each on the grant date?

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July 1 October 1 December 2 $30 per share 35 per share 37 per share