Question

E16-12B (L03) (Issuance, Exercise, and Termination of Stock Options) On July 1, 2016, Hooker Financial Corporation granted 50,000 options to key executives. Each option allows the executive to purchase one share of Hooker’s $1 par value com- mon stock at a price of $58 per share. The options were exercisable within a 2-year period beginning July 1, 2018, if the grantee is still employed by the company at the time of the exercise. On the grant date, Hooker’s stock was trading at $50 per share, and a fair value option-pricing model determines total compensation to be $350,000.

On July 1, 2018, 35,000 options were exercised when the market price of Hooker’s stock was $65 per share. The remaining options lapsed in 2020 because executives decided not to exercise their options.

Answer 1

Date	Account Titles and Explanation	Debit	Credit
July 1, 2016	No Entry on grant date
Dec 31 2016	Compensation expense	87500
	Paid in capital -stock options		87500
	[350,000 *1/2 *6/12]
Dec 31 2017	Compensation expense	175000
	Paid in capital -stock options		175000
	[350,000 *1/2]
June 30, 2018	Compensation expense	87500
	Paid in capital -stock options		87500
	[350,000 *1/2 *6/12]
July 1,2018	Cash [35000 *58]	2030000
	Paid in capital -stock options [350,000*35000/50000]	245000
	Common Stock		35000
	Paid in Capital in Excess of par		2240000
July 1,2018	Paid in capital - stock options	105000
	Paid in capital - expired stock options		105000
	[350,000 *15000/50000]