Question

3. On January 1, 2018, Norman Corporation granted compensatory stock options for 75,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black Scholes option pricing model determines total compensation expense to be $825.000 The options are exercisable beginning January 1, 2020, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2020. On January 4, 2020, when the market price of the stock was $45 per share, 70,000 options were exercised. The remaining options expired unexercised. Prepare the necessary entries for these events using the fair value method. (2 points) Date Account Titles Debit Credit

Answer 1

Date	Account Titles	Debit	Credit
Dec. 31, 2018	Compensation Expense ($825,000 x 1/2)	412500
	Paid-in-Capital - Stock Options		412500
Dec. 31, 2017	Compensation Expense ($825,000 x 1/2)	412500
	Paid-in-Capital - Stock Options		412500
Jan. 4, 2018	Cash (70,000 x $30)	210000
	Paid-in-Capital - stock Options (70,000 x $11)	770000
	Common Stock (70,000 x $20)		140000
	Paid-in Capital in Excess of Par-Common		840000
30-Jun-18	Paid-in-Capital - Stock Options (5,000 x $11 )	55000
	Paid-in-Capital - Expired Stock Options		55000