Olde Corporation Provides an Executive Stock Option Plan

Essay

Olde Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2009, that permit executives to acquire 2 million of the company's $1 par value common shares within the next five years, but not before December 31, 2010 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $14 per share. The fair value of the options, estimated by an appropriate option pricing model, is $2 per option. No forfeitures are anticipated. Ignore taxes.
Required:
(1.) Determine the total compensation cost pertaining to the options, assuming the fair value approach has been selected.
(2.) Prepare the appropriate journal entry to record the award of the options on January 1, 2009.
(3.) Prepare the journal entry to record compensation expense on December 31, 2009.
(4.) Prepare the journal entry to record compensation expense on December 31, 2010.