Question

on january 1, 2018, richard corp granted 4800 options to its officers. Each option entitles the holder to purchase one share of richards $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.

b) prepare journal entry when all options are exercised for 5 year limit

Answer 1

Answer:

Date	Accounting titles & Explanations	Debit($)	Credit($)
	Date of grant of option:
january 1, 2018	No Entry is required	-
			-
	(When Stock options are granted -
	no financial transaction is happened actually, thus no entry is required)
Dec31,2018	Compensation expense A/c Dr	92,000.00
	To Paid in capital - stock options A/c		92,000.00
	(To record compensation expense for first year)
Dec31,2019	Compensation expense A/c Dr	92,000.00
	To Paid in capital - stock options A/c		92,000.00
	(To record compensation expense for second year)
Compensation expense per year =  Fair value / No of years vested
= $184,000/2
= $92,000