Final answer:
The proper journal entry to record the compensation expense for the Ritter Company's stock options in 2015 would include a credit to Paid-in Capital—Stock Options for $45,000, representing one-third of the total expense to be recognized over the service period.
Step-by-step explanation:
On January 1, 2015, Ritter Company granted stock options to officers and key employees for the purchase of 15,000 shares of the company's $1 par common stock at $20 per share. These options were part of additional compensation for services to be rendered over the next three years and are exercisable over a five-year period from January 1, 2018, provided the grantees are still employed by Ritter. The Black-Scholes option pricing model determined the total compensation expense to be $135,000.
The question is about the journal entry to record the compensation expense related to these options for the year 2015. Compensation expense related to stock options should be recognized over the service period for which the options are being granted. In this case, that period is three years. Therefore, the total compensation expense of $135,000 would be recognized in equal parts over three years, which means $45,000 per year (135,000 / 3).
Hence, the journal entry for 2015 would include a credit to Paid-in Capital—Stock Options for $45,000.