Question

What happens if DeGeorge leaves the company before the five years has elapsed?For example, assume that DeGeorge leaves on February 3, 2022 (before any expense has been recorded during 2022). The entry to record this forfeiture is as follows.

Answer 1

If DeGeorge leaves the company before the five years have elapsed, the forfeiture of his stock options needs to be recorded in the company's books.

Step-by-step explanation:

If DeGeorge leaves the company before the five years have elapsed, the forfeiture of his stock options needs to be recorded in the company's books. The entry to record this forfeiture is as follows:

Debit: Stock Option Expense (with the cumulative amount recognized)

Credit: Additional Paid-In Capital - Stock Options (with the cumulative amount recognized)

This entry ensures that the expense previously recognized for the stock options is reversed, and the additional paid-in capital is adjusted accordingly.