In connection with a stock option plan for the benefit of key employees, Ward Corp. intends to distribute treasury shares when the options are exercised. These shares were bought in year 1 at $42 per share. On January 1, year 2, Ward granted stock options for 10,000 shares at $38 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a four‐year period beginning January 1, year 5, by grants still employed by Ward. Market price of Ward's stock was $47 per share at the grant date. The fair value of a similar stock option with the same terms was $12 at the grant date. No stock options were terminated during year 2. In Ward's December 31, year 2 income statement, what amount should be reported as compensation expense pertaining to the options?