Stock Options

Prepare the necessary entries from 1/1/10-2/1/12 for the following events using the fair value method. If no entry is needed, write "No Entry Necessary."

1. On 1/1/10, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 12,000 shares of common stock at $40 per share. The par value is $10 per share.

2. On 2/1/10, options were granted to each of five executives to purchase 12,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/12. It is assumed that the options were for services performed equally in 2010 and 2011. The Black-Scholes option pricing model determines total compensation expense to be $1,300,000.

3. At 2/1/12, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.