Question

Berg Company adopted a stock-option plan on November 30, 20x0, that provided that 70,000 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $9 a share. The market value was $12 a share on November 30, 20x0. On January 2, 20x1, options to purchase 28,000 shares were granted to President Tom Winter – 15,000 for services to be rendered in 20x1 and 13,000 for services to be rendered in 20x2. Also on that date, options to purchase 14,000 shares were granted to vice president Michelle Bennett – 7,000 for services to be rendered in 20x1 and 7,000 for services to be rendered in 20x2. The market value of the stock was $14 a share on January 2, 20x1. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options of the grant date was $4 per option.

            In 20x2 neither the president nor the vice president exercised their options because the market price of the stock was below the exercise price. The market value of the stock was $8 a share on December 31, 20x2, when the options for 20x1 services lapsed.

            On December 31, 20x3, both President Winter and Vice President Bennett exercised their options for 13,000 and 7,000 shares, respectively, when the market price was $16 a share.

Instructions: Prepare the necessary journal entries in 20x0 when the stock-option plan was adopted, in 20x1 when options were granted, in 20x2 when options lapsed, and in 20x3 when options were exercised.

Answer 1

Explanation:

2010 - No journal entry would be recorded at the time the stock option plan was adopted. November 30, 2010, indicating that a stock option plan had authorized the future granting common stock at $9.00 a share

Date	General Journal	Debit	Credit
Jan 2 2011	-No entry required-
Dec 31 2011	Compensation Expense ($4.00 per share × 22,000 share)	88000
	Paid-in Capital—Stock Options		88000
	(To record compensation expense attributable to 2014—22,000 options at $4)
Dec 31 2012	Compensation Expense ($4.00 per share × 20,000 shares)	80000
	Paid-in Capital—Stock Options		80000
	(To record compensation expense attributable to 2015—20,000 options at $4)
Dec 31 2012	Paid-in Capital—Stock Options	88000
	Paid-in Capital from Expired Stock Options		88000
	(To record lapse of president’s and vice president’s options to buy 22,000 shares)
Dec 31 2013	Cash ($9.00 × 20,000 shares)	180000
	Paid-in Capital—Stock Options ($4.00 × 20,000)	80000
	Common Stock ($5.00 par value × 20,000 shares)		100000
	Paid-in Capital in Excess of Par		160000