Question

Assume that Amazon has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in the future at a price equal to the fair value of the stock at the date of the grant. Amazon has 5,000 stock options outstanding, which were granted at the beginning of 2017. The following data relate to the option grant. Exercise price for options $40 Market price at grant date (January 1, 2017) $40 Fair value of options at grant date (January 1, 2017) $6 Service period 5 yearsa) Prepare the journal entry(ies) for the first year of the stock-option plan.

b) Prepare the journal entry(ies) for the first year of the plan assuming that, rather than options, 700 shares of restricted stock were granted at the beginning of 2010.

Answer 1

The answer is given below;

Step-by-step explanation:

a.Compensation Cost =Total option * fair value of option at grant date

=5,000*6=$30,000

Service period= 1 year

Vesting period= 3 years

Cumulative expense at end of year 2017=Total compensation cost*Service period/Vesting period=$30,000*1/3=$10,000

Expense for the year =$10,000

Stock Option Compensation Expense Dr.$10,000

Additional paid in capital-stock options Cr.$10,000

b.

Bank (700*$40) Dr.$28,000

Common Stocks 700*$1 Cr.700

Paid in capital in excess of par (28,000-700) Cr.$27,300