Question

On January 2, 2015, Ryan Company adopted a stock-option plan that granted options to key executives to purchase 20,000 shares of the company's $5 par value common stock. The options were granted on January 2, 2015, and were exerciseable two years after the date of grant if the grantee was still an employee of the company. The option exercise price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $400,000. What is the entry to recognize the conversion of Options to Common Stock at the end of the second year. (Compensation expense for the second year has already been recorded).

Answer 1

For Conversion of Options to Common Stock

Bank A/c                                                           ….Dr                (Actual Amount Received)

Employee Stock Options Outstanding A/C (Compensation Amount Balance )

                        To Equity Share Capital A/C (Share Capital Increment)

                        To Security Premium A/C (if any) (b/f)

Bank A/c                                                           ….Dr 600,000

To Employee Stock Options Outstanding A/C 400,000

                        To Equity Share Capital A/C 100,000

                        To Security Premium A/C (if any) 100,000

Note: It is assumed that no employee left the organisation and all options were exercised.