Question

Required information Knowledge Check 01 At January 1, Year 1, AMC Company grants 10,000 options that permit key executives to acquire 10,000 of the company's $1 par common shares within the next five years, but not before December 31, Year 3 (the vesting date). The exercise price is the market price of the shares on the date of grant, $20 per share. The fair value of the options is $4 per option. Eighty percent of the options (or 8,000) are exercised on January 5, Year 4 when the market price is $30 per share. The remaining 20% of the options expire as unexercised when the market price is $18 per share. Prepare the appropriate journal entry for the expiration of the unexercised options. View transaction list Journal entry worksheet Record the options that expire as unexercised at its fair value. Note: Enter debits before credits Prey5 67 of 16Next>

Answer 1

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Solution: Naming covention is not available, can be slightly different: "Contribution surplus - Stock option" "Paid in Capital - Stock option" OR: e.g. Account title and explaination Debit Event Credit |1) Paid In Capital - stock options Paid in Capital expiration of stock options |(To record the stock expiration) $8,000 (10000*20%) 4 $ 8,000 Note: If expired options are not credited to "Contributed Surplus expiration of stock options" then "Compensation expense" is credited as reversal of all effect