On January 1, 2010, Seles Company adopts a performance-based share option plan for its 80 key executives. Each executive is granted a maximum of 70 share options, but the number of options that vest depends on the percentage increase in Seles Company’s sales over a three-year service period. If by December 31, 2012, sales have increased by at least 10%, 50 options will vest for each executive; if sales have increased by at least 15%, all 70 options will vest. On the grant date, Seles estimates that its sales will increase by 12% over the service period, and that its annual employee turnover rate will be 2%. It also determines that the fair value of an option expected to vest is $13.40. At the end of 2012, actual sales had increased by 16% for the service period, and the actual turnover was six key executives for the service period.

Required

1. Prepare a schedule of the Seles Company’s computations for its compensatory share option plan for 2010 through 2012 (round all computations to the nearest dollar).

2. Prepare the compensation expense journal entry for 2010.