Refer to the situation described in BE 19–3. Suppose that unexpected turnover during 2025 caused the forfeiture of 5% of the stock options. What is the effect on earnings in 2025? In 2026?

Data from in BE 19-3

Under its executive stock option plan, National Corporation granted 12 million options on January 1, 2024, that  permit executives to purchase 12 million of the company’s $1 par common shares within the next six years, but  not before December 31, 2026 (the vesting date). The exercise price is the market price of the shares on the date  of grant, $17 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. No forfeitures are anticipated. Ignoring taxes, what is the total compensation cost pertaining to the stock options? What is the effect on earnings in the year after the options are granted to executives?