On January 1, 2016, sixty executives are offered a fixed compensatory stock option plan in which each of them will receive options to buy 5,000 shares of $10 par common stock at $30 a share. On the grant date, the fair value per option is $7.50. There is a three-year service period and an estimated annual employee turnover rate of 3%.

Required:

a. Compute the expected total compensation cost.

1. Compute the compensation expense for 2016.
2. Prepare the journal entry to record the exercise of options by six of the executives on January 1, 2019.