Question

Exercise 16-11

On January 1, 2018, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $350,000.

On April 1, 2019, 2,000 options were terminated when the employees resigned from the company. The market price of the common stock was $35 per share on this date.

On March 31, 2020, 12,000 options were exercised when the market price of the common stock was $40 per share.

Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2018, 2019, and 2020.

Answer 1

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Date	General Journal	Debit	Credit
Jan 1 2018	No Entry when granting
Dec 31 2018	Compensation Expense ($350,000/2 Years)	$175,000
	Paid in Capital Stock Options		$175,000
	(To record compensation expense for Year 2018)
Apr 1 2019	Paid in Capital Stock Options	$ 17,500
	Compensation Expense		$ 17,500
	(To record termination of stock options)
	$350,000*2,000/20,000*1/2
Dec 31 2019	Compensation Expense ($350,000/2 Years)	$157,500
	Paid in Capital Stock Options		$157,500
	(To record compensation expense for Year 2019)
	$350,000*18,000/20,000*1/2
Mar 31 2020	Cash (12,000*$25)	$300,000
	Paid in Capital Stock Options ($350,000*12,000/20,000)	$210,000
	Common Stock (12,000*$10)		$120,000
	Paid in capital, in excess of par-Common		$390,000
	(To record exercise of stock options)