Question

On January 1, 2019, Riverbed Corporation granted 11,000 options to key executives. Each option allows the executive to purchase one share of Riverbed’s $5 par value common stock at a price of $19 per share. The options were exercisable within a 2-year period beginning January 1, 2021, if the grantee is still employed by the company at the time of the exercise. On the grant date, Riverbed’s stock was trading at $25 per share, and a fair value option-pricing model determines total compensation to be $376,000.

On May 1, 2021, 8,800 options were exercised when the market price of Riverbed’s stock was $29 per share. The remaining options lapsed in 2023 because executives decided not to exercise their options.

Prepare the necessary journal entries related to the stock option plan for the years 2019 through 2023.

Answer 1

Solution: Debit Credit pate I Account Titles and Explanation January 1, 2019 No Entry December 31, 2019 | compensation Expenese (376,000 x 1/2) Paid in capital - stock option December compensation Expense (376,600 X 1/2) L Paid in capital - stock option $ 188,000 $ 188,000 $ 188,000 31, $ 188,000 May 1, 2021 167, 200 300,800 cash (8,800 x 19) Paid in capital - stock option (376, 000 X 8,800/11, 000) common stock (8,80085) Paid in capital in excess of par 44,000 344,800 75,200 January 1, paid in capital - stock option 2023 I (376,000 – 300, 800) I paid in capital from expired stock 75,200