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13. On January 1, 2016, Robertson Company created a fixed compensatory stock option plan for employees...

13. On January 1, 2016, Robertson Company created a fixed compensatory stock option plan for employees to acquire 18,000 shares of $3 par common stock for $22 a share. The options vest after four years of employment, and therefore, they cannot be exercised until January 1, 2020. On the grant date, the fair value of the options was $5 per option. All options were exercised on June 30, 2020. Robertson Company accounts for this plan using the fair value method.

Required: Record all entries relating to this stock option plan over the life of the plan.

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Answer #1

Recording annual compensation expense for each of the years 2016–2019:

Account title Debit Credit
Compensation Expense ($18000 * 5 /4) 22500
Paid-in Capital from Share Options 22500

Recording the exercise of the options on June 30, 2020

Account title Debit Credit
Cash [ 22 *18000 ] 396000
Paid-in Capital from Share Options 90000
Common stock [ 3*18000] 54000
Additional Paid-in Capital on common stock 432000
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