On January 1, 2018, Boeing granted 80,000 stock options to key members of its executive team. Each option grants the executives the ability to purchase one share of Boeings common stock ($10 par value) at a price of $40 per share. The options were exercisable within a 2-year period beginning on January 1, 2020, as long as the executives remain an employee at Boeing until that date. It is assumed that the options were for services performed equally in 2018 and 2019. The Black-Scholes option pricing model determines total compensation expense to be $1,500,000. On January 1, 2020, the Boeingexecutives exercised 48,000 of their stock options. On that date, Boeings stock had a market price of $50 per share. The remaining 32,000 stock options lapsed on January 1, 2022because of the decision not to exercise their options.

Required:

1. Prepare the necessary journal entries related to the stock option plan for the years 2018 through 2022.

2. Over what period of time should compensation cost be allocated? What is the purpose of allocating the compensation cost over this period of time?