Stock Option Expense. Macrosoft Corp. granted 50,000 non-qualified stock options for its $1 par value common stock to its employees on January 1st, 2020. The exercise price of the options was set to equal the current market price of $40 per share. The options vest after 4 years and expire in 10 years. The fair value of the options estimated by the Black-Scholes pricing model was $6 per share. The company estimates that 20% of the options will be forfeited by employees.

1. Calculate the total amount of compensation expense Macrosoft will record in connection with this stock option grant, assuming its estimate of forfeitures is correct.

2. Calculate the annual amount of stock option expense Macrosoft will record in years 2020-2023.

3. Assume that employees exercise 10,000 options on May 15, 2024. Prepare the journal entry for the exercise of the options. Ignore income tax effects.