2. (15 pts.) Prepare the necessary entries from 1/1/14-2/1/16 for the following events using the fair value method. If no entry is needed, write "No Entry Necessary."

1. On 1/1/14, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 18,000 shares of common stock at $40 per share. The par value is $10 per share.

2. On 2/1/14, options were granted to each of five executives to purchase 18,000 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 2/1/16. It is assumed that the options were for services performed equally in 2014 and 2015. The Black-Scholes option pricing model determines total compensation expense to be $1,900,000.

3. At 2/1/16, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.