On 1 January 20219, Wellington Limited announces a grant of 250 share options to each of its 20 senior executives with an exercise price of $40. On the grant date the estimated FV of the options is $14 per option.

The grant is offered based on following condition:

Senior executive must continue to work for Wellington Limited during the three-year vesting period.

The exercise price of the option will drop to $30 if Wellington Limiteds earnings increase by an average of 10% per year over the three-year vesting period.

If the exercise price drops to $30, the estimated FV of the options is $16 per option.

During the year 1, the companys earnings increased by 12% and they are expected to continue to increase at this rate over the next 2 years. However, during this, three senior executives leave, and the company revises its estimate of total senior executives departures over the full 3-year period from 10% to 15%.

During year 2, the companys earnings increased by 13% and the company continued to expect that the earnings target would be achieved. During this year, a further two senior executives leave, and the company revises its estimate of total senior executives departures over the full 3-year period down to 12%.

During year 3, the companys earnings increased by only 3% and the earnings target was therefore not achieved and so the 5000 vested share options will have an exercise price of $40. During the final year, a further senior executive leave and therefore senior executives who could not meet the service condition forfeited their right to share options.

Required:

a) Prepare a schedule setting out the annual and cumulative remuneration expense to be recognised by Wellington Limited for services rendered as consideration for the share options granted.

b) Prepare the journal entries that would appear in the records of Wellington Limited for the reporting period 31 December 2019, 2020 and 2023.