Accounting for Dilutive securities and Earning per share. On November 1, 2017, L
ID: 2335750 • Letter: A
Question
Accounting for Dilutive securities and Earning per share.
On November 1, 2017, Larkspur Company adopted a stock-option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 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 $450,000.
All of the options were exercised during the year 2020: 20,000 on January 3 when the market price was $69, and 10,000 on May 1 when the market price was $78 a share.
Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019.
Explanation / Answer
Date Accounts title and Explanation Debit ($) Credit ($) 01-02-2018 No Entry is required otherwise on exercise date 12/31/2018 Compensation Expense 2,25,000 Paid-in Capital-Stock Options 2,25,000 [To record compensation expense for 2018 (1/2 * $450,000)] 12/31/2019 Compensation Expense 2,25,000 Paid-in Capital-Stock Options 2,25,000 [To record compensation expense for 2019 (1/2 * $450,000)] 01-03-2020 Cash (20,000* $30) 6,00,000 Paid-in Capital-Stock Options ($450000 * 20,000/30,000) 3,00,000 Common Stock (20,000 * $10) 2,00,000 Paid-in Capital in Excess of Par 7,00,000 (To record issuance of 20,000 shares of $10 par value stock upon exercise of options at option price of $30) 05-01-2020 Cash (10,000 * $30) 3,00,000 Paid-in Capital-Stock Options ($450,000 * 10,000/30,000) 1,50,000 Common Stock (10,000 * $10) 1,00,000 Paid-in Capital in Excess of Par 3,50,000 (To record issuance of 10,000 shares of $10 par value stock upon exercise of options at option price of $30)