Question

On 9/1/16, Armada Company adopted a stock option plan for
Joe and Erica to purchase common stock at $20 per share.
Joe was granted options to purchase 1,000
shares of stock: 700 shares for services performed in 2017
and 300 shares for services performed in 2018. Erica was
granted options to purchase 1,200 shares of stock: 800 shares
for services performed in 2017 and 400 shares for services
performed in 2018. These options can be exercised in 2019
and 2020. The fair value of the options on 9/1/16 (the grant
date) was $28 per option. The common stock is $1 par.
1) Record compensation expense for the stock option plan
for 2017 and 2018.
2) Assume in 2019, Joe exercises 800 of his options and
Erica exercises 1,100 of her options. The market price
of the common stock was $41 at the time of exercise.
Please record the exercise of the stock options.
3) Assume it is now 1/1/21, and no other options were
exercised. Record the expiration of the remaining options.
Date		DR	CR

Answer 1

	Market Price	28
	Exercise Price	20
Joe	No of Shares	1000	2017	700
			2018	300
Erica	No of Shares	1200	2017	800
			2018	400

1)

Option Expense	=	(Expected Option to be Availed)*Value of option * Expired Period
		Vesting Period
Option Expense	=	(700 + 800) * (28 - 20) * 1
2017		1
	=	12000
Option Expense	=	(300 + 400) * (28 - 20) * 1
2017		1
	=	5600

2017	Employee Compensation	Debit	12000
	Employee Stock Option	Credit	12000
2108	Employee Compensation	Debit	5600
	Employee Stock Option	Credit	5600

2)

Cash (1100+800)*20	Debit	38000
Employee Stock Option	Credit	38000
Employee Stock Option (1900*28)	Debit	53200
Common Stock	Credit	1900
Additional Paid in Capital	Credit	51300

3)

Employee Stock Option	Debit	2400
General Reserve	Credit	2400

Date		DR	CR
2017	Employee Stock Option		12000
2018	Employee Stock Option		5600
2019	Employee Stock Option		38000
2019	Employee Stock Option	53200
20121	Employee Stock Option	2400
		55600	55600