On January 1, 2014, AMM granted 1,500 employee share options that cliff vest after a four-year service period, with an exercise price of $24 per share. Using the Black-Scholes pricing model, the Company determined the grant-date fair-value-based measure of the awards was $12. On the grant date, the Companys stock was trading at $24 per shareOn January 1, 2014, AMM granted 1,500 employee share options that cliff vest after a four-year service period, with an exercise price of $24 per share. Using the Black-Scholes pricing model, the Company determined the grant-date fair-value-based measure of the awards was $12. On the grant date, the Companys stock was trading at $24 per share.

Summarize (in your own words, with references) how compensation expense related to employee stock options should be calculated under US GAAP and calculate the annual compensation expense related to the stock options in the case for the first two years of the service period (prior to the modification). Be sure to explain the calculations that you did to arrive at the annual compensation expense.