Need help with how to account for stock options. Need all required journal entri
ID: 2542403 • Letter: N
Question
Need help with how to account for stock options. Need all required journal entries. All info is in the image.At the beginning of 2018, Dogbert, Inc. adopted a stock option plan for key employees. Under the plan, options are exercisable beginning four years after the grant date for a maximum of six years. On 1/1/18, Dogbert granted 120,000 options with an exercise (strike) price of $20 when the market price for Dogbert's $1 par value common shares was $20 per share. At that point in time, 110,000 options were expected to vest. Using the Black-Scholes Option Pricing Model, the fair value of each option was $4 as of 1/1/18. At the beginning of 2020, an unexpected number of executives departed, resulting in a decrease in the expected number of options to vest. The new estimate on 1/1/20 was 95,000 options. On 3/17/22, 50,000 options were exercised when the market price of Dogbert's stock was $25. Required Prepare any necessary journal entries for 2018-2022 related to these stock options using the fair value approach, ignore taxes.
Explanation / Answer
Date
Accounts and explanations
Debit ($)
Credit ($)
01-01-18
Employee stock compensation expenses
440000
Employee stock scheme
440000
(Being the employee stock option recorded)
(110000 X 4)
31-12-18
Profit and loss account
440000
Employee stock compensation expenses
440000
(Being the employee stock compensation expenses adjusted against profit and loss account)
01-01-20
Employee stock scheme
60000
Employee stock compensation expenses
60000
(Being the excess employee stock scheme reversed)
(110000 X4) - (95000 X4)
31-12-20
Employee stock compensation expenses
60000
Profit and loss account
60000
(Being the profit and loss account adjusted)
17-03-22
Bank (50000 x 20)
1000000
Employee stock scheme
250000
(50000 X 25) - (50000 X 20)
Equity share capital (50000 X 1)
50000
Excess of par value
1200000
(50000 X 25) - (50000 X 1)
(Being 50000 employee stock option exercised)
Employee stock scheme
130000
(380000 - 250000)
Profit and loss account
130000
(Being the excess amount adjusted in the profit and loss account)
Date
Accounts and explanations
Debit ($)
Credit ($)
01-01-18
Employee stock compensation expenses
440000
Employee stock scheme
440000
(Being the employee stock option recorded)
(110000 X 4)
31-12-18
Profit and loss account
440000
Employee stock compensation expenses
440000
(Being the employee stock compensation expenses adjusted against profit and loss account)
01-01-20
Employee stock scheme
60000
Employee stock compensation expenses
60000
(Being the excess employee stock scheme reversed)
(110000 X4) - (95000 X4)
31-12-20
Employee stock compensation expenses
60000
Profit and loss account
60000
(Being the profit and loss account adjusted)
17-03-22
Bank (50000 x 20)
1000000
Employee stock scheme
250000
(50000 X 25) - (50000 X 20)
Equity share capital (50000 X 1)
50000
Excess of par value
1200000
(50000 X 25) - (50000 X 1)
(Being 50000 employee stock option exercised)
Employee stock scheme
130000
(380000 - 250000)
Profit and loss account
130000
(Being the excess amount adjusted in the profit and loss account)