Problem: Prepare the necessary entries from 1/1/07-2/1/09 for each of the following events using the fair value method. If no entry is needed for an event, write "No Entry Necessary."
[Hint: Remember, there are five different dates involved]
1) On 1/1/07, 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 2/1/07, 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 2/1/09. It is assumed that the options were for services performed equally in 2007 and 2008. The Black-Scholes option pricing model determines total compensation expense to be $1,300,000.
3) At 2/1/09, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.