Question - On January 1, 2011 Reese Company granted Jack Buchanan, an employee, an option to buy 100 shares of Reese Co. stock for $40 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $1,200. Buchanan exercised his option on September 1, 2011, and sold his 100 shares on December 1, 2011. Quoted market prices of Reese Co. stock during 2011 were:

January 1 $40 per share

September 1 $48 per share

December 1 $54 per share

The service period is for two years beginning January 1, 2011.

Instructions:

1) As a result of the option granted to Buchanan, using the fair value method, Reese should recognize compensation expense for 2011 on its books in the amount of

2) Prepare journal entries relating to the stock option plan for years 2010, 2011, and 2012. Assume that the employee performance services equally in 2010 and 2011.