On November 6, 2006, Gunpowder Corp.s board of directors approved a share option plan for key executives.

Question:

On November 6, 2006, Gunpowder Corp.’s board of directors approved a share option plan for key executives. On January 2, 2007, a specific number of share options were granted. These options were exercisable between January 2, 2009 and December 31, 2011 at 90% of the quoted market price on January 2, 2007. The service period is for 2007 and 2008. Some options were forfeited when an executive resigned in 2008. All other options were exercised during 2009.

Required
1. How should Gunpowder determine the compensation expense, if any, for the share option plan in 2007?
2. What is the effect of forfeiture of the share options on Gunpowder’s for 2008?
3. What is the effect of the share option plan on the at December 31, 2009? Be specific as to the changes in accounts between November 6, 2006 and December 31, 2009.

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