Question

Accounting for Stock Options (14 points) 2. At the beginning of 2018, Dogbert, Inc. adopted a stock option plan for key employees. Under the plan, options are exercisable beginning six years after the grant date for a maximum of eight years. On 1/1/18, Dogbert granted 120,000 options with an exercise (strike) price of $25 when the market price for Dogbert's $1 par value common shares was $25 per share. At that point in time, all options were expected to vest. Using the Black-Scholes Option Pricing Model, the fair value of each option was $10 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 100,000 options. On 3/17/25, 80,000 options were exercised when the market price of Dogbert's stock was $30. Following that, the stock price plummeted and the remaining 20,000 options expired unexercised on 1/1/26 Required Prepare any necessary journal entries for 2018 - 2025 related to these stock options

Answer 1

Above Question based on Employee Stock option exercised in period of 2018 to 2025 and finally exercise option at Strike price and convert the same into Equity share + Premium

Dogbert Inc- Employee Stock Option
Grant date minimum of 8 years
on 1/1/2018
Dogbert granted 1,20,000 Options
Strike Price ( $)	25
Market Price- $1/ per share
Fair Value as on 1/1/2018($)	10
Option Number	1,20,000
Number of Year ( 2018-2025)- Year	7
Option Exercise
Year 1/1/2018
Option Number	1,20,000
Fair Value as on 1/1/2018($)	10
Option Expenses
(('120000*10*1)- Expenses recognised)//Number of Year ( 7)
Option Expenses Year 31/12/2018($)	1,71,429	( No Earlier Expenses )
Option Expenses Year 1/1/2019
(('120000*10*1)- Expenses recognised)//Number of Year ( 7)	1,71,429
Option Expenses Year 31/12/2019($)	1,71,429	( Earlier Expenses- as above 171429 )
Change in Estimate 1/1/20
Option Number	1,00,000
Option Expenses Year 31/12/2020($)	85,714	( Earlier Expenses- as above 171429*2 )
(('100000*10*1)- Expenses Earlier recognised)//Number of Year ( 7)
Option Expenses Year 31/12/2021($)	1,42,857	( Earlier Expenses- as above 171429*2+85714 )
(('100000*10*1)- Expenses Earlier recognised)//Number of Year ( 7)
Option Expenses Year 31/12/2022($)	1,42,857	( Earlier Expenses- as above 171429*2+85714+142857 )
(('100000*10*1)- Expenses Earlier recognised)//Number of Year ( 7)
Option Expenses Year 31/12/2023($)	1,42,857	( Earlier Expenses- as above 171429*2+85714+142857 *2)
(('100000*10*1)- Expenses Earlier recognised)//Number of Year ( 7)
Option Expenses Year 3 1/12/2024($)	1,42,857	( Earlier Expenses- as above 171429*2+85714+142857 *3)
(('100000*10*1)- Expenses Earlier recognised)//Number of Year ( 7)

	Journal Entries
1/1/2018	No Journal Entries
			Debit ($)	Credit ($)
31-12-2018	Employee Compensation		1,71,429
	Employee Stock Compensation			1,71,429
	Profit / Loss		1,71,429
	Employee Compensation			1,71,429
31-12-2019	Employee Compensation		1,71,429
	Employee Stock Compensation			1,71,429
	Profit / Loss		1,71,429
	Employee Compensation			1,71,429
31-12-2020	Employee Compensation		85,714
	Employee Stock Compensation			85,714
	Profit / Loss		85,714
	Employee Compensation			85,714
31-12-2021	Employee Compensation		1,42,857
	Employee Stock Compensation			1,42,857
	Profit / Loss		1,42,857
	Employee Compensation			1,42,857
31-12-2022	Employee Compensation		1,42,857
	Employee Stock Compensation			1,42,857
	Profit / Loss		1,42,857
	Employee Compensation			1,42,857
31-12-2023	Employee Compensation		1,42,857
	Employee Stock Compensation			1,42,857
	Profit / Loss		1,42,857
	Employee Compensation			1,42,857
31-12-2024	Employee Compensation		1,42,857
	Employee Stock Compensation			1,42,857
	Profit / Loss		1,42,857
	Employee Compensation			1,42,857
Option Exercise			Debit ($)	Credit ($)
31-12-2025	Bank		20,00,000
	Employee Stock Compensation			20,00,000
	Option Exercise ( 80000*25)
	(80000 Option * Strike Price ( $25)
3/17/2025	Employee Stock Compensation		24,00,000
	Equity Share capital			80,000
	Share Premium			23,20,000
	(80000 Option * Market price ($30)
	(80000 Option *Price per share $1)