Question

Prepare the necessary entries from 1/1/20-2/1/22 for the following events using the fair value method. (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.)

1.		On 1/1/20, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 16,000 shares of common stock at $45 per share. The par value is $10 per share.
2.		On 2/1/20, options were granted to each of five executives to purchase 16,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/22. It is assumed that the options were for services performed equally in 2020 and 2021. The Black-Scholes option pricing model determines total compensation expense to be $1,890,000.
3.		At 2/1/22, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.

No.	Date	Account Titles and Explanation	Debit	Credit
1.	1/1/20
2.	2/1/20
	12/31/20
	12/31/21
3.	2/1/22
		(To record exercise of options)
	2/1/22
		(To record lapse of options)

Answer 1

Leave Codib) Jan 1, General Journal Alchilles operator Debt No entoy necessady 2020 Debit (6) Coodet as lo Date Gerencel Toumal 21/20 No entoy necessady 12/31/20 compensation expense AIC OO 70 poed-s-Capital-stock options Alo 12/31/2 compenselpon expense AIC OO To poed-P0- Capital -stock options AIC. 9H5,000 945200 945,000 945,000 Date Genocal Journal Debil-($) credint 1 211122 Cash AIC OD Cux 16,000x45) 2,880,000 paid Pn capitel - stock options ALDO 1.548,000 (1.935,000 4 u/s) To comma Stocic AIC 720,000 To paid in capital in excess of pao Alc 3,708,000 2111221 pasa po capoteel-stocle options AI DO 342,000 To pold-Po-Capeteel-expired stocle oplosald 342000