Problem 16-4 Assume that Amazon.com has a stock-option plan for top management.

Question

Problem 16-4 Assume that Amazon.com has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in the future at a price equal to the fair value of the stock at the date of the grant. Amazon has 5,100 stock options outstanding, which were granted at the beginning of 2017. The following data relate to the option grant. Exercise price for options Market price at grant date (January 1, 2017) Fair value of options at grant date (January 1, 2017) Service period $39 $39 $6 5 years Prepare the journal entries for the first year of the stock-option plan. (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 d for the amounts.) Date Account Titles and Explanation Debit Credit

Explanation / Answer

Part A

compensation expense

(6*5100/5)

Part B

Part C

Part D

1)Substantially all employees may participate - Relevant

2)The discount from market is small (less than 5%) - Relevant

3)The plan offers no substantive option feature - Relevant

4)There is no preferred stock outstanding - Irrelevant

Date account titles and explanation debit credit January 1 2017 No Entry December 31 2017

compensation expense

(6*5100/5)

6120 Paid in capital - stock options 6120

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