On November 1, 2020, Carla Company adopted a stock-option plan that granted options to key executives...

On November 1, 2020, Carla Company adopted a stock-option plan that granted options to key executives to purchase 33,900 shares of the company’s $9 par value common stock. The options were granted on January 2, 2021, 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 $508,500.

All of the options were exercised during the year 2023: 22,600 on January 3 when the market price was $65, and 11,300 on May 1 when the market price was $74 a share.

Prepare journal entries relating to the stock option plan for the years 2021, 2022, and 2023. Assume that the employee performs services equally in 2022 and 2023.

Solutions

Expert Solution

Date	Accounts title and Explanation	Debit ($)	Credit ($)
02-01-2021	No Entry

31-12-2021	Compensation Expense	$ 2,54,250.00
	Paid-in Capital-Stock Options		$ 2,54,250.00
	[To record compensation expense for 2021 ($508,500 * 1/2)]

31-12-2022	Compensation Expense	$ 2,54,250.00
	Paid-in Capital-Stock Options		$ 2,54,250.00
	[To record compensation expense for 2022 ($508,500 * 1/2)]

03-01-2023	Cash (22600*$30)	$ 6,78,000.00
	Paid-in Capital-Stock Options ($508500/33900*22600)	$ 3,39,000.00
	Common Stock (22,600 * $9)		$ 2,03,400.00
	Paid-in Capital in Excess of Par		$ 8,13,600.00
	(To record issuance of 22,600 shares of $9 par value stock upon exercise of options at option price of $30)

01-05-2023	Cash (11300 * $30)	$ 3,39,000.00
	Paid-in Capital-Stock Options ($508500/33900*11300)	$ 1,69,500.00
	Common Stock (11300 * $9)		$ 1,01,700.00
	Paid-in Capital in Excess of Par		$ 4,06,800.00
	(To record issuance of 11300 shares of $9 par value stock upon exercise of options at option price of $30)

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