On January 1, 2011 Rialto Co granted Joe Smith, an employee, an option to buy 100 shares of Rialto 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 $1200. Smith exercised his option on September 1, 2011 and sold his 100 shares on December 1, 2011. Quoted market prices of Rialto 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 2 years beginning January 1, 2011
(A) As a result of the option granted to Smith, using fair value method, Rialto should recognize compensation expense for 2011 on its books in the amount of?
(B) Prepare journal entries relating to the stock option plan for years 2010, 2011, 2012. Assume 2010 and 2011 performances were the same.