Eagle Builders, Inc. initiated a stock option plan for its employees on January 1 of the current year. The terms of the plan grant each employee 10 options to acquire 10 shares of the company’s $ 1 par value, common stock at an exercise price of $ 45 per share. The market price on the date of the grant is also $ 45 per share. On the grant date, a binominal model estimated the fair value of the options at $ 83 per share. The option plan permits exercise only after three years of service and all options expire after six years. On the date of the grant, Eagle employed 1,200 employees. The options are equity-classified awards.

Required
a. Assuming that the initial vesting probability is 100%, prepare the journal entries necessary:
• To record the grant of the options.
• To record the recognition of compensation expense each year assuming that the fair value of the options was as follows:
• $ 75 per share at the end of the year of the grant.
• $ 69 and $ 81 per share at the end of year 2 and year 3, respectively, following the year of the grant.
b. Repeat the requirements in part a, assuming that the estimated vesting probabilities are:
• 80% at the beginning of year 1.
• 65% at the beginning of year 2.
• 75% at the beginning of year 3.
c. Repeat the requirements in part a, assuming that Eagle grants the options to acquire the company’s redeemable preferred shares rather than its common stock.