Question

Marin Inc. has an executive stock option plan, details of which follow:

●		The plan entitles the President to purchase 52,900 common shares at $51.50 after a two-year vesting period that begins on the grant date of January 1, 2020.
●		The President can exercise the stock options any time between January 1, 2022 and December 31, 2026.
●		The President exercises 41,700 of the stock options on June 30, 2022. The rest of the options are allowed to lapse.
●		The shares’ market prices per share are as follows:

January 1, 2020		$51.50
December 31, 2020		$56.40
December 31, 2021		$58.80
June 30, 2022		$61.90

Marin uses an option-pricing model to value the stock options. When granted, the options are estimated to have a fair value of $8.50 each. This estimate remains unchanged during the vesting period.

Assuming that Marin has a December 31 year end, prepare the required journal entries as at the following dates. (Credit account titles are automatically indented when the 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.)

(a)		January 1, 2020 (grant date)
(b)		December 31, 2020
(c)		June 30, 2022 (exercise date)
(d)		January 1, 2027 (lapse date)

Assuming that Marin has a December 31 year end, prepare the required journal entries as at the following dates. (Credit account titles are automatically indented when the 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.)

(a)		January 1, 2020 (grant date)
(b)		December 31, 2020
(c)		June 30, 2022 (exercise date)
(d)		January 1, 2027 (lapse date)

Answer 1

Total fair value of options = 52,900 * $ 8.5 = $449,650

Vesting period. = 2 years

Amortization per vesting period is $449,650/ 2 =$224,825

(a).

Date	accounts title and explanation	debit($)	credit($)
January 1,2020	No entry	0
	No entry		0

(b).

Date	accounts title and explanation	debit($)	credit($)
December 31,2020	employee benefit expense a/c	224,825
	Employee stock option outstanding a/c		224,825
	(To record amortization for year)

(c).

Date	accounts title and explanation	debit($)	Credit($)
June 30,2022	cash (41,700 * $51.50)	2,147,550
	Employee stock option outstanding a/c [449,650*(41700/52900)]	354,450
	Equity share capital a/c		417,000
	Securities premium a/c		2,085,000
	To record 6000 options exercise)

(d).

Date	account title and explanation	debit($)	credit($)
January 1,2027	employee stock option outstanding a/c(52,900-41,700)*$8.5	95,200
	Capital reserve		95,200
	(11,200 options lapsed)