Question

On January 1, 2021, Cullumber Inc. granted stock options to officers and key employees for the purchase of 21,000 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, 2023, by grantees still in the employ of the company, and expiring December 31, 2027. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $328,400. On April 1, 2022, 2,100 options were terminated when the employees resigned from the company. The market price of the common stock was $36 per share on this date. On March 31, 2023, 12,600 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, 2021, 2022, and 2023.

Answer 1

Answer & Explanation:

December 31, 2021

Compensation Expense 164,200

Paid-in Capital (328,400 x 0.5) 164200

To record compensation expense

April 1, 2022

Paid-in Capital 32,840

Compensation Expense (328,400 x 2100/21000) 32,840

To record termination of stock option

December 31, 2022

Compensation Expense 147,780

Paid-in Capital (328,40 x 1/2 x 18900/21000) 147,780

To record compensation expense

March 31 , 2023

Cash ( 12,600 x $25) 315,000

Paid-in Capital (328,400 x 12,600/21,000) 197040

Common Stock (21,000 x $10) 126,000

Paid-in Capital in Excess of Par 386,040

To record exercise of stock option

December 31, 2023

6,300 stock options not exercised (21,000 - 2,100 - 12,600)