Question

On 1/1/18, ABC Corp. granted employees 200,000 stock options. Additional information is presented below:
Option Price	$                     30	per share
Share Price on 1/1/18	$                     30	per share
Par Value of Stock	$                       1	per share
Option Value on 1/1/18	$900,000
Vesting/Service Period	3	years
Expiration Date	12/31/2022
On 1/1/20, employees holding 20,000 options resigned from the company, thus forfeiting their options.
On 1/1/22, 60,000 options were exercised when the market price was $45/share.
On 12/31/22, the remaining options expired. 1) Provide the journal entry on 1/1/18. 2) Provide the journal entry to be made on both 12/31/18 and 12/31/19. 3) Determine the amount of compensation expense to be reported in 2020.

Answer 1

1. Provide the journal entry on 1/1/18.

No entry is required in the Grant Date

2) Provide the journal entry to be made on both 12/31/18 and 12/31/19.

Date	Account Description	Debit	Credit
31-Dec-18	Compensation Expenses	$         300,000
	Paid-in Capital - Stock Options		$         300,000
	(To record Stock Option Expenses)
	(900000/3 = 300000)
31-Dec-19	Compensation Expenses	$         300,000
	Paid-in Capital - Stock Options		$         300,000
	(To record Stock Option Expenses)
	(900000/3 = 300000)

3) Determine the amount of compensation expense to be reported in 2020.

Compensation Expenses = 270000 - 60000 = $ 210,000

Journal entry and Calculation given below:

Date	Account Description	Debit	Credit
1-Jan-20	Paid-in Capital - Stock Options	$            60,000
	Compensation Expenses		$            60,000
	(To record termination of Stock Option of Resigned Employee)
	* 600000/200000 x 20000
31-Dec-20	Compensation Expenses	$         270,000
	Paid-in Capital - Stock Options		$         270,000
	(To record Stock Option Expenses)
	(900000/200000 x 180000)/3

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