Question

On January 1, 2018, Martinez Inc. granted stock options to officers and key employees for the purchase of 22,000 shares of the company’s $10 par common stock at $23 per share. The options were exercisable within a 5-year period beginning January 1, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $340,800.On April 1, 2019, 2,200 options were terminated when the employees resigned from the company. The market price of the common stock was $33 per share on this date.On March 31, 2020, 13,200 options were exercised when the market price of the common stock was $41 per share.Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2018, 2019, and 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)DateAccount Titles and ExplanationDebitCreditJan. 1, 2018Dec. 31, 2018April 1, 2019Dec. 31, 2019Mar. 31, 2020Jan. 1, 2018Dec. 31, 2018April 1, 2019Dec. 31, 2019Mar. 31, 2020Jan. 1, 2018Dec. 31, 2018April 1, 2019Dec. 31, 2019Mar. 31, 2020Jan. 1, 2018Dec. 31, 2018April 1, 2019Dec. 31, 2019Mar. 31, 2020Mar. 31, 2020

Answer 1

Date Account titles and explanation Debit Credit

Jan 1, 2018 No entry

Dec 31, 2018 Compensation expense $170,400

Paid in capital - stock option $170,400

($340800 * 1/2)

April 1,2019 Paid in capital - stock option $17,040

Compensation expenses $17,040

($170400 * 2200 / 22000)

Dec 31 ,2019 Compensation expenses $153,360

Paid in capital - stock option $153,360

{($340800 * 1/2) * 19800 / 22000}

Mar 31, 2020 Cash $303,600

(13,200 * $23)

Paid in capital - stock option $204,480

($340800 * 13200 / 22000)

Common stock $132,000

(13200 * $10)

Paid in capital in excess of par $376,080