On January 1, 2007 Brown issued 10 million stock options that would permit key executives to buy 10 million shares of the Browns $1 par value common stock at an exercise price of $15. The options vest after 5 years and expire in 15 years. The fair value of these options on the grant date was estimated at $4 each.

During 2010 Brown Company reacquired 15 million common shares as follows:

2/1/2010 3 million shares at $10 each

4/15/2010 4 million shares at $20 each

6/1/2010 8 million shares at $30 each

On January 1, 2012 the stock price was $32 per share, and half the executives exercised their options. On Feb 1, 2013 the stock price was $45 per share, and the other half of the executives exercised their options.

Assume that Brown reissues treasury shares to executives that exercise options, and that it is using the first-in first-out cost flow method.

Required:

1. Prepare the journal entry for compensation expense in 2007.

2. Prepare the journal entries to record the shares repurchase during 2010.

3. Prepare the journal entries to record the exercise of the options on 1/1/2012 and on 2/1/2013.