On January 1, 2021, Rival grants 100,000 stock options to employees. Each option entitles the employee to purchase one share of Rivals $1 par common stock for a $12 exercise price at any time during 2023. The options vest over two years. At grant, the market price of Rivals stock is $10, and the options are valued at $250,000. Rival expects 100% vesting.

a. (2%) What amount of compensation expense will Rival record in 2021 (year 1)?

b. (2%) In 2022, several employees unexpectedly resign and forfeit their options. The expected vesting rate drops to 40%. Prepare the compensation expense journal entry that Rival will record in 2022 (year 2)?

c. (4%) On September 10, 2023, the market price of Rivals stock is $21, and Rival employees exercise 35,000 options. Rival issues new shares to cover the award. Prepare the journal entry to record this option exercise. Assume that Rival uses the book method to record stock issuances.

d. (2%) On December 31, 2023, the market price of Rivals stock is $11, and the remaining 5,000 options expire. Prepare the journal entry to record the expiration.