Question

On January 1, 2016, Asquith Company adopts a performance-based stock option plan with a four-year vesting and service period, a $35 exercise price, and a $6 per option fair value. The plan grants a maximum of 2,000 shares of $5 par common stock to each of the company's 30 executives. The number of shares that vest depends on the increase in sales during the service period, based on the following scale:

Sales Increase
at Least	No. of Shares
5%	1,000
10%	1,500
15%	2,000

Asquith estimates that sales will increase by 12% during the service period. The estimate is achieved and all options are exercised on January 1, 2020.

Required:

Assuming Asquith uses the fair value method to account for its stock option plan, prepare all of the journal entries over the life of Asquith's stock option plan (2016 through 2020).

Answer 1

S.No	Particulars	Amount
A	Number of Shares per Employee	1500
B	Number of Emoloyees	30
C	Value of Option	$6
D	Total Value of Stock Option (A*B*C)	$270,000
E	Vesting Period	4 Years
F	Stock option expense per Anum (D/E)	$67,500

Date	Particulars		Debit ($)	Credit ($)
2016-2020	Stock Option Expense	Dr	$67,500
	To Stock option Plan			$67,500
	Being Stock Option Expense recognised every year
2016-2020	Profit and Loss A/C	Dr	$67,500
	To Stock option Expense			$67,500
	Being Stock Option Expense Charged to P&L

S.No	Particulars	Amount
A	Number of Shares per Employee	1500
B	Number of Emoloyees	30
C	Total Number of Options (A*B)	45,000
D	Exercice Price Per Option	$35
E	Par Value of Each Stock	$5
F	Premium per Stock (D-E)	$30
G	Par Value of Total Options (E*C)	$225,000
H	Total Securities Premium (F*C)	$1,350,000

Date	Particulars		Debit ($)	Credit ($)
1-Jan-20	Bank A/C	Dr	$1,575,000
	To Common Stock			$225,000
	To Securities Premium			$1,350,000
	Being Stock Option exercised