Question

In: Accounting

On November 1, 2017, Blue Company adopted a stock-option plan that granted options to key executives...

On November 1, 2017, Blue Company adopted a stock-option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $450,000. All of the options were exercised during the year 2020: 20,000 on January 3 when the market price was $69, and 10,000 on May 1 when the market price was $78 a share. Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019.

Expert Solution

02/01/18 No Entry

31/12/18 Compensation Expense ac dr. $225,000 (1/2 X $450,000)

To Stock Options $225,000

[To record expense for 2018]

31/12/19 Compensation Expense ac dr. $225,000 (1/2 X $450,000)

To Stock Options $225,000

[To record expense for 2019]

03/01/2020 Cash a/c dr. $600,000 (20000*30)

Stock Options a/c dr. $300,000 ($450,000 X 20,000/30,000)

To Common Stock $200,000 (20000*10)

To Paid-in Capital $700,000

(To record issuance of 20,000 shares)

01/05/2020 Cash a/c dr. $300,000 (10000*30)

Stock Options a/c dr. $150,000 ($450,000 X 10,000/30,000)

To Common Stock $100,000 (10000*10)

To Paid-in Capital $350,000

(To record issuance of 10,000 shares)

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