5. STOCK OPTIONS - Prepare the necessary entries from 1/1/17-2/1/19 for the following events using the fair value method. If no entry is needed, write "No Entry Necessary."

a. On 1/1/17, 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.

b. On 2/1/17, 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 2/1/19. It is assumed that the options were for services performed equally in 2017 and 2018. The Black-Scholes option pricing model determines total compensation expense to be $2,000,000.

c. At 2/1/19, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.

6. WEIGHTED AVERAGE NUMBER OF SHARES OF OUTSTANDING - On January 1, 2018, ABC Corporation had 1,400,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them. Required: Compute the weighted average number of shares to be used in computing earnings per share for 2018.

7. DILUTED EARNING PER SHARE, CONVERTIBLE SECURITIES - ABC Corporation has weightedaverage number of common stock outstanding throughout 2018 of 450,000 shares. In addition, the corporation has $6,000,000 bonds, 7%, convertible into 100,000 common stock. During the year 2018, the corporation has net income of $900,000. Required: Compute the basic earnings per share and the diluted earnings per share. The tax rate is 30%.