Discussion Question 12-13 (LO. 3)

Paola exercised an incentive stock option on March 1, 2016. She acquired 2,000 shares of stock at an exercise price of $3 per share when the fair market value of the stock was $15 per share. However, Paola was concerned that the stock was overvalued, so she sold all of the stock acquired with the option on December 21, 2016, for $17 per share.

Q Paola will recognize ______?$ as compensation income and _______?$ as short-term capital gain.