Question

Wall Drugs offered an incentive stock option plan to its employees. On January 1, 2016, options were granted for 60,000 $1 par common shares. The exercise price equals the $5 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2019, and expire December 31, 2020. Each option has a fair value of $1 based on an option pricing model. What is the entry to record the expiration of 10% of the options on December 31, 2020?

Answer 1

See the explanation below.

Step-by-step explanation:

Fair value of expired option = 60,000 * $1 * 10% = $6,000

Journal entries will be as follows:

Details Dr ($) Cr ($)

Paid-in capital - stock options 6,000

Paid-in capital - expiration to stock options 6,000

To record the expiration of stock option