On January 1, 2017, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 60,000 shares of common stock at $40 per share. The par value of the common stock is $10 per share. The Black-Scholes option-pricing model was used to determine that total compensation expense is $1,300,000. The options can only be exercised beginning January 1, 2019.

Prepare the necessary entries as noted in (a) and (b) below. Assume thatno entry is recorded on the date of the grant.

(a) Prepare the journal entries required at December 31, 2017 and 2018.

(b) Prepare the 2019 journal entry required assuming that only 48,000 options (80% of the options) were exercised and 12,000 expired and were not exercised (i.e., 20% of the options expired).