At the start of the year a business grants five key personnel 400 stock options each. The fair value (FV) of each option at the date of grant is 6.00. The options vest at the end of a 3 year period at which point the option holders can exercise their options. This means no partial vesting during the three year period; the options vest 100% at the end of three years. This will not change the allocation of the expense over the vesting period.

The exercise (strike) price is the same as the share price at the date of grant which is 22.00 and the par of each share is 1.00.

a. Record stock option compensation cost over the 3 year vesting period. Take the forfeitures into account as they occur. One employee leaves in year 2 and forfeits their options. One more employee leaves in year 3 and forfeits their options.

b. Assume in year 6, all the remaining options are exercised. Show the entry. The stock is trading at $30 at this time.