Question

On November 1, 2017, Tamarisk Company adopted a stock-option plan that granted options to key executives to purchase 24,900 shares of the company’s $9 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 $373,500.

All of the options were exercised during the year 2020: 16,600 on January 3 when the market price was $66, and 8,300 on May 1 when the market price was $77 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. (Credit account titles are automatically indented when 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. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Date	Account Titles and Explanation	Debit	Credit
May 1, 2020

Answer 1

The Journal Entry's for stock option plan for the year 2018, 2019 and 2020 are given below ;

Date	Account Title and Explanation	Debit	Credit
Feb 1 2018	No Entry
Dec 31 2018	Compensation Expense Account	$ 186,750
	Paid in capital stock option Account		$ 186,750
	(To record the compensation Expense)
Dec 31 2019	Compensation Expense Account	$ 186,750
	Paid in capital stock option account		$ 186,750
	( To record the compensation Expense)
March 1 2020	Cash	$ 498,000
	Paid in capital stock option	$ 249,000
	Common Stock($16,600 * 9)		$ 149,400
	Paid in capital in excess of par		$ 597,600
	(To record the transaction of selling the common stock )
May 1 2020	Cash ($ 8,300 * 30 )	$249,000
	Paid in Capital Stock Option	$124,500
	Common Stock ($ 8,300 * 9 )		$74,700
	Paid in capital in excess of par		$298,800

Working Notes ;

Calculation of paid in capital stock option account on 1st March 2020

Paid in capital stock option account

   = $ 373,500 * 16,600 / 24,900 = $249,000

Calculation of paid in capital stock options account on 1st May 2020

Paid in capital stock option account

= $ 373,500 * 8,300 / 24,900 = $124,500