In-Class Exercise #6 ACC 420 Fall 2017 Name On January 1, 2015, Olympic Company
ID: 2583538 • Letter: I
Question
In-Class Exercise #6 ACC 420 Fall 2017 Name On January 1, 2015, Olympic Company adopted a stock-option plan that granted options to key executives to purchase 40,000 shares of the company's $10 par value c were exercisable 2 years after the date of grant (lanuary 1, 2017) if the grantee was still an 1. ommon stock. The options employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model determines the total compensation expense on the grant date to be $600,000. Assume all of the options were exercised on January 3, 2017 when the market price was $67 per share. Instructions Prepare journal entries relating to the stock-option plan for the years 2015, 2016, and 2017Explanation / Answer
Solution:-
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Date Account titles and description Debit Credit Jan. 1, 2015 No entry (total compensation cost is $6000,000) Dec. 31, 2015 Compensation expense 300,000 Paid-in Capital—Stock Options 300,000 To record compensation expense for 2015 (1/2 X $600,000) Dec. 31, 2016 Compensation Expense 300,000 Paid-in Capital—Stock Options 300,000 To record compensation expense for 2016 (1/2 X $600,000) Jan. 3, 2017 Cash (40,000 X $40) 1,600,000 Paid-in Capital—Stock Options 600,000 Common Stock (40,000 X $10) 400,000 Paid-in Capital in Excess of Par 1,800,000 (To record issuance of 40,000 shares of $10 par value stock upon exercise of options at option price of $40)