Question

Wall Drugs offered an incentive stock option plan to its employees. On January 1, 2021, options were granted for 75,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2024, and expire December 31, 2025. Each option has a fair value of $1 based on an option pricing model. Which is the correct entry to record compensation expense for the year 2021

Answer 1

Dr Compensation expense $12,500

Cr Paid-in capital - stock options $12,500

Step-by-step explanation:

Preparation of the correct entry to record compensation expense for the year 2021

Based on the information given the correct journal entry to record compensation expense for the year 2021 is :

Dr Compensation expense $12,500

Cr Paid-in capital - stock options $12,500

[(75,000 x $1)/6]

(Being to record compensation expense for the year 2021)