Aaron was granted 1,000 of Aeronautics qualified incentive stock options an exercise share price of $25. (The stock at the time of the grant was selling for $25.) Exactly one year later, Aaron exercises the options and purchases the $1,000 shares for $25,000. 18 months after the exercising of the options, Aaron sells the stock for $65,000. (For purposes of the problem assume that the ordinary income tax rate and short-term capital gain rate is 28% and the long-term capital gain rate is 15%. Show your work in order to receive partial credit.)

1. What were the tax implications of the exercise (i.e., one year after the qualified incentive stock option grant)?

2. What were the tax implications of the sale (i.e., 18 months after the stock exercise)