On January 1, 2020, Henson Corporation granted its chief executive officer the option to purchase 10,000 shares of $1 par value common stock for $40 a share. The market price of the stock on January 1, 2020 was $45 a share. The fair value of the options on the grant date was $50,000. The options were granted based upon two years of service (years 2020 and 2021) to be performed by this executive. On May 1, 2022 the executive exercised one-half (5,000) of these options.

1. Prepare the entry on December 31, 2020 to record the compensation expense.

2. Prepare the entry on May 1, 2022 to record the exercise of the 5,000 options.

Answer rating: 100% (QA)

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