The following events occurred regarding the company's executive compensation plan:
1. On 1/1/x4, the stockholders adopted a stock option plan for two executives whereby each might receive rights to purchase up to 20,000 shares of common stock at $40 per share. The par value is $10 per share.
2. On 2/1/x4, options were granted to each of five executives to purchase 20,000 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/x6. It is assumed that the options were for services performed equally in 20x4 and 20x5. The Black-Scholes option pricing model determines total compensation expense to be $2,100,000.
3. At 2/1/x6, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.
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a. Prepare the journal entry for 12/31/x4
Compensation Expense Paid-In-Capital-Stock Option
b. Prepare journal entries for 12/31/x5
c. Prepare journal entries for 2/1/x6