Question

ournal entry richard corp granted 4800 options to its officers each option entitles the holder to purchase one share of richard 5 par value of common stock at 30 per share anytime for next 5 years. the market price of stock is 48 per share on date of grant the fair value of option n date of grant is 184000. the period of benefit is 2 years.

a. prepare jornal entry for first two years.

b. prepare jornal entry when all options are exercised for 5 year limit

Answer 1

Particulars	Debit($)	Credit($)
No entry	-
No entry		-
(Being recording grant)
Compensation expense	$92,000
Paid in capital stock options		$92,000
(To record compensation expense for first year)
Compensation expense	$92,000
Paid in capital stock options		$92,000
(To record compensation expense for second year)

Working notes:

Annual expense = Fair value / No of years vested

= $184,000/2 = $92,000