On January 1, 2011, Johnson Corporation granted 4,000 options to executives. Each option entitles the holder to purchase one share of Johnson’s common shares at $40 per share at any time during the next five years. The shares’ market price is $55 per share on the date of grant. The period of benefit is two years. Prepare Johnson’s journal entries for January 1, 2011, and December 31, 2011, and 2012. Assume that the options’ fair value as calculated using an options pricing model is $106,000. Ignore forfeitures for simplification purposes.
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