Question

On January 1, 2016, Vaughn Corporation granted 10,300 options to key executives. Each option allows the executive to purchase one share of Vaughn’s $5 par value common stock at a price of $21 per share. The options were exercisable within a 2-year period beginning January 1, 2018, if the grantee is still employed by the company at the time of the exercise. On the grant date, Vaughn’s stock was trading at $26 per share, and a fair value option-pricing model determines total compensation to be $403,000.

On May 1, 2018, 8,240 options were exercised when the market price of Vaughn’s stock was $31 per share. The remaining options lapsed in 2020 because executives decided not to exercise their options.

Prepare the necessary journal entries related to the stock option plan for the years 2016 through 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
Vaughn Corporation
Date	Account Titles and Explanation	Debit	Credit
01-01-2016	No entry require for granting of option	0	0
31-12-2016	Compensation expense (403,000/2)	$2,01,500
	Paid-in-capital - Stock Options		$2,01,500
	(To record recognition of Compensation expense for 2016)
31-12-2017	Compensation expense	$2,01,500
	Paid-in-capital - Stock Options		$2,01,500
	(To record recognition of Compensation expense for 2017)
01-05-2018	Cash (8,240 * $21)	$1,73,040
	Paid-in-capital - Stock Options (($403,000*(8240/10300)	$3,22,400
	Common stock (8,240 * $5)		$   41,200
	Paid-in-capital in Excess of par		$4,54,240
	(To record exercise of stock option)
01-01-2020	Paid-in-capital - Stock Options	$   80,600
	Paid-in-capital - expired stock		$   80,600
	(To record Paid-in-capital from expired stock)
Please Like !!!