Pillow Corp. granted 100,000 non-qualified stock options for its $1 par value common stock to its employees on January 1^st, 2021. The exercise price of the options was set to equal the current market price of $50 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 Pillow 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 Microsoft will record in the years 2021-2024. Prepare the journal entry to record this expense for 2021.
3. Assume that employees exercise 30,000 options on May 15, 2025. Prepare the Journal Entry for the exercise of the options. Ignore income tax effects.

Answer rating: 100% (QA)

Total Options granted by the company Options that the company expects to be forfeited O... View the full answer