Question

E16.10 (LO 3) (Issuance and Exercise of Stock Options) On November 1, 2020, Columbo Com- pany adopted a stock-option plan that granted options to key executives to purchase 30,000 shares of the company's $10 par value common stock. The options were granted on January 2, 2021, and were exer- cisable 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 $40, and the fair value option-pricing model determines the total compensation expense to be $450,000. All of the options were exercised during the year 2023: 20,000 on January 3 when the market price was $67, and 10,000 on May 1 when the market price was $77 a share. Instructions Prepare journal entries relating to the stock option plan for the years 2021, 2022, and 2023. Assume that the employee performs services equally in 2021 and 2022

Answer 1

Answer:

Journal Entries relatig to stock option plan for the years 2021, 2022, 2023 as follows:

For the Year 2021
Date	Particulars	Debit ($)	Credit ($)
02 Jan,2021	No Entry
This is the date of grant
(Total Compensation expense is $ 450,000)
31 Dec, 2021	Compensation Expense A/c Dr	225,000
To Paid - in - Capital Stock Options A/c		225,000
(To record Compensarion expense for 2021)

For the Year 2022
Date	Particulars	Debit ($)	Credit ($)
31 Dec, 2022	Compensation Expense A/c Dr	225,000
To Paid - in - Capital Stock Options A/c		225,000
(To record Compensarion expense for 2022)

For the Year 2023
Date	Particulars	Debit ($)	Credit ($)
03 Jan,2023	Cash A/c Dr (20,000 * $ 40)	800,000
Paid - in - Capital Stock Options A/c Dr	300,000
(450,000 * 20,000)/ 30,000
To Common Stock (20,000 * $ 10)		200,000
To Paid - in - Capital in Excess of par common stock		900,000
(To record issuance of 20,000 shares of $ 10 par value of stock upon exercise of options at option price of $ 40)
01 May, 2023	Cash A/c Dr (10,000 * $ 40)	400,000
To Paid - in - Capital Stock Options A/c	150,000
(450,000 * 10,000)/ 30,000
To Common Stock (10,000 * $ 10)		100,000
To Paid - in - Capital in Excess of par common stock		450,000
(To record issuance of 10,000 shares of $ 10 par value of stock upon exercise of options at option price of $ 40)