In: Accounting
Prepare all the necessary journal entries for the transactions listed above for Parker Corporation.
5. On December 1, 2018, Folks Wagon Company adopted a stock-option plan that granted options
to key executives to purchase 50,000 shares of the company’s $10 par value common stock. The
options were granted on January 1, 2019, and were exercisable 3 years after the date of grant if the
grantee was still an employee of the company. The options expired 5 years from the date of grant.
The option price was set at $35, and the fair value option-pricing model determines the total
compensation expense to be $450,000.
All of the options were exercised during the year 2022: 20,000 on February 23 when the market
price was $46, and 30,000 on August 8 when the market price was $85 a share.
a. Prepare the journal entries relating to the stock option plan for the years 2019, 2020, and 2021.
Assume that the employee performs services equally in 2019, 2020, and 2021.
b. Prepare the journal entries that record the two events of exercising the options in 2022
Answer:
a | Date | Accounts | Dr($) | Cr($) |
Jan 1, 2019 | No Entry (Compensation expense-$450,000 Given) | |||
Dec 31, 2019 | Compensation Expense | $ 150,000 | ||
Paid-in Capital—Stock Options | $ 150,000 | |||
(Compensation expense being recorded for 2019, 1/3 x $450,000) | ||||
Dec 31, 2020 | Compensation Expense | $ 150,000 | ||
Paid-in Capital—Stock Options | $ 150,000 | |||
(Compensation expense being recorded for 2020, 1/3 x $450,000) | ||||
Dec 31, 2021 | Compensation Expense | $ 150,000 | ||
Paid-in Capital—Stock Options | $ 150,000 | |||
(Compensation expense being recorded for 2021, 1/3 x $450,000) | ||||
b | Feb 23, 2022 | Cash (20,000 X $35) | $ 700,000 | |
Paid-in Capital—Stock Options ($450,000 X 20,000/50,000) | $ 180,000 | |||
Common Stock (20,000 X $10) | $ 200,000 | |||
Paid-in Capital in Excess of Par | $ 680,000 | |||
(To record the issuance of stock against stock options of 20000 at price of $35) | ||||
Aug 8, 2022 | Cash (30,000 X $35) | $ 1,050,000 | ||
Paid-in Capital—Stock Options ($450,000 X 30,000/50,000) | $ 270,000 | |||
Common Stock (30,000 X $10) | $ 300,000 | |||
Paid-in Capital in Excess of Par | $ 1,020,000 | |||
(To record the issuance of stock against stock options of 30000 at price of $35) |
Thank you!