The board of directors of Simon Art Supplies Company approved a plan to grant 150,000 options to its key executives to acquire 150,000 shares of no-par common stock at an exercise price of $ 20 per share. The effective date of the grant is January 1 of year 1. Simon granted the options on a date when the company’s shares are trading for $ 24 per share. On the grant date, the Black-Scholes option- pricing model estimates the fair value of the options at $ 66 each. A three- year service period is required to exercise the options and all options expire at the end of a five-year period. Management estimates a vesting probability of 100%.

Required
a. Determine the compensation expense for year 2.
b. Determine the compensation expense for year 3 assuming that 25% of Simon’s key executives left the company at the beginning of year 3 and prior to vesting. Prepare the required journal entries.
c. Prepare the journal entry required to record the exercise of the options by the remaining key executives.