In 2011, BB granted an incentive stock option (ISO) to Mr. Yarnell to buy 7,000 shares of BB stock at $8.50 per share for 10 years. At date of grant, BB stock was trading on the AMEX for $8.09 per share. In 2020, Mr. Yarnell exercised the option when BBs stock was trading at $24.27 per share.

Required:

1. How much income did Mr. Yarnell recognize in 2011 and 2020 because of the ISO?
2. Compute Mr. Yarnells basis in the 7,000 shares.
3. What are the tax consequences of the stock option to BB in 2011 and 2020?