Prepare the necessary entries from 1/1/14-2/1/20 for the following events using the fair value method. a. On 1/1/20, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 16,000 shares of common stock at $35 per share. The par value is $10 per share.
b. On 2/1/20, options were granted to each of five executives to purchase 16,000 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 2/1/22. It is assumed that the options were for services performed equally in 2020 and 2021. The Black-Scholes option pricing model determines total compensation expense to be $1,910,000.
c. At 2/1/22, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.