Question

Stock Options

On December 30, 2014, Yang Corporation granted compensatory stock options for 5,000 shares of its $1 par value common stock to certain of its key employees. The options may be exercised after 2 years of employment. Market price of the common stock on that date was $30 per share and the option price was $30 per share. Using a fair value option pricing model, total compensation expense is determined to be $80,000. The options are exercisable beginning January 1, 2017, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on January 1, 2018.
Instructions:
Prepare the following selected journal entries for the company on the answer sheet (if no entry required, state "no entry").
(1) December 30, 2014.
(2) December 31, 2015.
(3) January 1, 2017, assuming 90% of the options were exercised at that date.
(4) January 1, 2018, for the 10% of the options that expired.

Answer 1

Date Account Titles Debit Credit

Dec 30, 14 No entry on Grant Date

Dec 30, 15 Compensation expense $40000

Paid in capital- stock options $40000

Dec 30, 16 Compensation expenses $40000

Paid in capital- stock options $40000

Jan 1, 17 Cash (30*5000*90%) $135000

Paid in capital- stock options $72000

(80000*90%)

Common stock (5000*90%*1) $4500

Paid in capital $202500

Jan 1, 18 Paid in capital- stock options $8000

Paid in capital- expired stock options $8000