Prepare the necessary entries from 1/1/17-2/1/19 for the following events using
ID: 2550461 • Letter: P
Question
Prepare the necessary entries from 1/1/17-2/1/19 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.)
No.
Date
Account Titles and Explanation
Debit
Credit
1/1/17
2/1/17
12/31/17
12/31/18
2/1/19
2/1/19
1. On 1/1/17, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 25,000 shares of common stock at $35 per share. The par value is $10 per share. 2. On 2/1/17, options were granted to each of five executives to purchase 25,000 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 2/1/19. It is assumed that the options were for services performed equally in 2017 and 2018. The Black-Scholes option pricing model determines total compensation expense to be $1,800,000. 3. At 2/1/19, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.Explanation / Answer
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1 No Entry required under fair value method 2 No Entry required under fair value method 3 Cash to be received 4 employee exercised*25000 Share*35 per share 3500000 Common Stock Par Value 4 employee exercised*25000 Share*10 per share 1000000 Compensation Exp 4/5*1800000 1440000 Journal for exercising Option Debit Credit Cash 3500000 APIC-Stock Options 1440000 Common stock 1000000 APIC-Common Stock 3940000 Journal for expired Option APIC-Stock Options 360000 APIC-Expired Stock Options 360000 (1800000-1440000)