RED Corp. granted options for 20,000 common shares to certain executives on January 1, 2019, when the market price was $52 per share. The option price is $44 per share and the options must be exercised between January 1, 2021, and December 31, 2023, after which time they expire. The options state that the related service period is January 1, 2019 to December 31, 2020. An options pricing model determined that, at the date of grant, the estimated fair value of these options was $1,000,000. Assume that RED Corp. follows IFRS.

REQUIRED:

(a) Calculate total compensation expense, consistent with IFRS.

(b) Explain when compensation expense should be recognized, consistent with IFRS. Is this reasonable? Explain.

(c) Prepare journal entries for the following, consistent with IFRS (items 3 and 4 are independent assumptions). :

1. To record the issuance of the options (grant of options) on January 1, 2019.

2. To record the compensation expense, if any. Date the entry(ies). Assume all employees remain employed by RED Corp.

3. To record the exercise of the options, assuming all of the options were exercised on the earliest possible date, January 1, 2021.

4. To record the expiration of the options, assuming all of the options were not exercised because the market price fell below the exercise price before January 1, 2021 and stayed below the exercise price for the balance of the option period.