Question

On January 1, 2018 Martinez Inc. granted stock options to officers and key employees for the purchase of 19000 shares of the company's $10 par common stock at $25 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 awards is 2 years. Assume that the fair value option pricing model determines total compensation expense to be $353600.

On April 1, 2019 1900 options were terminated when the employees resigned from the company. The market price of the common stock was $37 per share on this date.

On March 31, 2020 11400 options were exercised when the market price of the common stock was $40 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, 2020.

Answer 1

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1/1/2018	No entry
12/31/2018	Compensation Expense	$                                                                        176,800
	Paid-in Capital—Stock Options		$          176,800
	(To recognize compensation expense for 2015) ($353,600 X 1/2)
4/1/2019	Paid-in Capital—Stock Options	$                                                                          17,680
	Compensation Expense		$            17,680
	(To record termination of stock options held by resigned employees)
	($176,800 X 1,900/19,000)
12/31/2019	Compensation Expense	$                                                                        159,120
	Paid-in Capital—Stock Options		$          159,120
	(To recognize compensation expense for 2019)
	($176,800 X 17,100/19,000)
3/31/2020	Cash (11,400 X $25)	$                                                                        285,000
	Paid-in Capital—Stock Options ($353,600 X 11,400/20,000)	$                                                                        201,552
	Common Stock (11,400*$10)		$          114,000
	Paid-in Capital in Excess of Par		$          372,552
	(To record exercise of stock options)