Prepare the necessary entries from 1/1/14-2/1/16 for the following events using
ID: 2426987 • Letter: P
Question
Prepare the necessary entries from 1/1/14-2/1/16 for the following events using the fair value method. (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.)
Date
Account Titles and Explanation
Debit
Credit
1/1/14
2/1/14
12/31/14
12/31/15
2/1/16
2/1/16
1. On 1/1/14, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 16,000 shares of common stock at $45 per share. The par value is $10 per share. 2. On 2/1/14, options were granted to each of five executives to purchase 16,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/16. It is assumed that the options were for services performed equally in 2014 and 2015. The Black-Scholes option pricing model determines total compensation expense to be $1,890,000. 3. At 2/1/16, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.Explanation / Answer
Date Accounts Title Dr Cr 1/1/2014 No entry 2/1/2014 No entry required 12/31/2014 Compensation expense 945000 Paid in capital-Stock Option 945000 ($1890000/2) 12/31/2015 Compensation expense 945000 Contributed Surplus- Stock Options 945000 ($1890000/2) 2/1/2016 Cash (4*16000*45) 2880000 Paid in capital-Stock Option(1890000/5*4) 1512000 Common Stock(4*16000*10) 640000 Additional paid in capital 3752000 option excecised 2/1/2016 Paid in capital-Stock Option 378000 Paid in capital-Expired Option 378000 (1890000/5*1) lapses