Question

On November 1, 2020, Sage Company adopted a stock-option plan that granted options to key executives to purchase 24,300 shares of the company’s $10 par value common stock. The options were granted on January 2, 2021, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $50, and the fair value option-pricing model determines the total compensation expense to be $364,500.

All of the options were exercised during the year 2023: 16,200 on January 3 when the market price was $66, and 8,100 on May 1 when the market price was $75 a share.

Prepare journal entries relating to the stock option plan for the years 2021, 2022, and 2023. Assume that the employee performs services equally in 2022 and 2023.

Answer 1

Solutlu o Given that Date Accounts title and explanation Débort (o) Cadet A) (01-02-2021 | No entry 12/31/2021 compensation expense 1,82,250 paid on capital - Stock options 1,82,250 To second .compensation expense for 2021 (62X 364,500) $9,82,950 $ 1,82950 12/31/2022 compensation expense paid in capital stock options To second compensation expense Hor 2012 (16_x 364,500) 1-3-2023 Cash (16,900X$ 50) $8,10,000 paid an capitai -Stocu options (8364,500 x 16,200/94,300 $9,43,000 common stocis (16,200 x410) $1,67,000 paigaldan capital excess of paa $8,10,000 $1,62,000+$2.43.00) ; $ 8,91,000 (To second issuance of 16,200 shaney of$10 per value stocie upon excease of option at option I price of $50

05-01-2020 Cash (8,100x350) $495.000 paid in capital-stock Optiong (1364,500 48,100 1243.0ft, 2150 common stock 8,100 x$10) paid in capital in exces of (To reload issuance at 8,100 shares at & io per Value stacio u pon excercise of optiol at option price $50 $81,000 $3,36,150