Question

On January 1, 2018, Cullumber Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $27 per share. The options were exercisable within a 5-year period beginning January 1, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $323,200.

On April 1, 2019, 2,000 options were terminated when the employees resigned from the company. The market price of the common stock was $33 per share on this date.

On March 31, 2020, 12,000 options were exercised when the market price of the common stock was $41 per share.

Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2018, 2019, and 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Answer
Date	Account Titles and Explanation	Debit	Credit
01-01-2018	No entry
31-12-2018	Compensation expense ($323,200/2)	$1,61,600
	Paid-in-capital - Stock Options		$1,61,600
	(To record recognition of Compensation expense for 2018)
01-04-2019	Paid in capital -stock option ($323200/2 * 2000/20000)	$   16,160
	Compensation expense		$   16,160
	(To record option termination)
31-12-2019	Compensation expense ($323,200/2) - (18000/20000)	$1,45,440
	Paid-in-capital - Stock Options		$1,45,440
	(To record recognition of Compensation expense for 2019)
31-12-2020	Cash (12000 * $27)	$3,24,000
	Paid-in-capital - Stock Options (($323200 *(12000/20000)	$1,93,920
	Common stock (12000 * $10)		$1,20,000
	Paid-in-capital in Excess of par		$3,97,920
	(To record exercise of stock option)
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