This year, Haven Corporation granted a nonqualified stock option to Olivia to buy 5,000 shares of Haven stock for $20 for five years. At date of grant, Haven stock was selling on Nasdaq for $19 per share. For financial statement purposes, Haven recorded $16,500 compensation expense for the estimated value of the option. Five years after Haven granted the option to Olivia, she exercised it on a day when Haven stock was selling for $27 per share. Required:
a. How much income must Olivia recognize as a result of the grant of the option?
b. Can Haven deduct the $16,500 compensation expense on this year's tax return?
c. Assuming a 21% tax rate, compute Haven's deferred tax asset or deferred tax liability (identify which) resulting from the $16,500 compensation expense.