Question

Problem 16-3

Sage Company adopted a stock-option plan on November 30, 2016, that provided that 72,500 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $9 a share. The market price was $13 a share on November 30, 2017. On January 2, 2017, options to purchase 30,100 shares were granted to president Tom Winter—15,200 for services to be rendered in 2017 and 14,900 for services to be rendered in 2018. Also on that date, options to purchase 15,800 shares were granted to vice president Michelle Bennett—7,900 for services to be rendered in 2017 and 7,900 for services to be rendered in 2018. The market price of the stock was $13 a share on January 2, 2017. The options were exercisable for a period of one year following the year in which the services were rendered.

The fair value of the options on the grant date was $5 per option. In 2018, neither the president nor the vice president exercised their options because the market price of the stock was below the exercise price. The market price of the stock was $8 a share on December 31, 2018, when the options for 2017 services lapsed.

On December 31, 2019, both president Winter and vice president Bennett exercised their options for 14,900 and 7,900 shares, respectively, when the market price was $16 a share. Prepare the necessary journal entries in 2016 when the stock-option plan was adopted, in 2017 when options were granted, in 2018 when options lapsed, and in 2019 when options were exercised.

Answer 1

ANSWER: DR CR Nov. 30, 2016 Jan. 2, 2017 No journal entry would be recorded at the time the stock option plan was adopted No Dec. 31, 2017 Compensation Expense Paid in Capital- Stock Option (15200+7900)*5-23100*5 -115000 Compensation Expense Paid in Capital- Stock Option (14900+7900) 5-22800 5-114000 115000 115000 Dec. 31, 2018 114000 114000 Dec. 31, 2018Paid-in Capital-Stock Options 115000 Paid-in Capital from Expired Stock Options (To record lapse of president's and vice president's options) 115000 Dec. 31, 2019 Cash (14900+7900)*10-22800 10 228000 114000 Paid-in Capital-Stock Options (S5.00 x (14900+7900) Common Stock (S5.00 par value x(14900+7900) paid-in Capital in Excess of Par (To record issuance of shares.) 114000 228000