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axiom company compensates its key employees by offering stock options as part of the total compensation. on january 1 of the current year, axiom granted 87,000 options to acquire 87,000 shares of its $4 par value common stock at an exercise price of $40 per share. the market price on the date of the grant is also $40 per share, so there is no intrinsic value. at grant date, the fair value of the options is $4,350,000, or $50 per option. The initial vesting probability is assumed to be 60%. the option plan qualifies as an equity-c;assified award. there is a 2 year vesting period required before employees can purchase the shares. Requirement a. assuming no changes in vesting probabilty, prepare the journal entries required to record compensation expense over the vesting period. Prepare the entry to record compensation expense for year 1. Prepare the entry to record the compensation for year 2. B. Prepare all journal entries required in year 2 assuming that the probability increases to 70% in year 2. assume that the company chooses to adjust the fair value for the estimated forfeitures. Prepare the entry to record the compensation expense for year 2. C. Assume that employees exercise 90% of the options expected to vest from part b and the other 10% expire. prepare any journal entries required to record the exercise and expirations. Prepare the journal entry to record the exercise assuming that employees exercise 90% of the options. Prepare the entry to record for the expirations assuming that 10% of the options expired. D. Assume that 30% of the options are forfeited in year 1 and another 30% are forfeited in year 2. assume that the company accounts for forfeitures when they occur. prepare all journal entries in year 1 and year 2, including the journal entry to record the exercise of the options. first prepare the entry to record the compensation expense for year 1. now for year 2. prepare the entry to record the exercise of the options.

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