In January of Year 1, Relic Company grants five executives options to purchase 1,000 shares each of its $10 par value common stock at $50 per share.

In January of Year 1, Relic Company grants five executives options to purchase 1,000 shares each of its $10 par value common stock at $50 per share. The options will vest in 3 years, and must be exercised within 5 years. An option pricing model determines that the total fair value of the options is $400,000, and the market price of the shares on that day is $65.