Question

1. Johnstown Company granted 10 officers rights to buy 10,000 shares each of common stock $2 par, at $10 per share on May 1, 2017, the grant date. The stock was selling for $8 per share at the time. The rights cannot be exercised until the beginning of 2018 and expire at the end of 2018. Compensation expense is $200,000, covering a period of 2017 and 2018.

Record the following:                                                                                                     Dr.          Cr.

May 1, 2017, the grant date, issue of the rights.

Dec. 31, 2017, compensation expense

Jul. 1, 2018, 90% of the rights were exercised, as the stock climbed to $13 per share.

Dec. 31, 2018, 10% of the rights expired.

Answer 1

Date	Account Titles	Debit $	Credit $
May.1,2017	No Journal Entry on Grant date
Dec.31,2017	Compensation Expense	200,000
	Additional paid in capital -Stock option		200,000
Jul.1 ,2018	Cash ( 10 x 10,000 x 90% x 10 )	900,000
	Additional paid in capital -Stock option	180,000
	(200,000 x 90% )
	Common Stock , $ 2 Par ( 10,000 x 10 x 90% x 2 )		180,000
	Paid in capital in excess of par-Common Stock		900,000
Dec.31,2018	Additional paid in capital -Stock option	20,000
	(200,000 x 10% )
	Additional paid in capital -Expired Stock option		20,000