Man of War Company adopted a stock-option plan on April 30, 2019, that provided that 500,000 shares of $10 par value stock be designated as available for the granting of options to officers of the corporation at a price of $26 a share. The market price was $20 a share on April 30, 2019. On January 2, 2020, options to purchase 40,000 shares were granted to president—15,000 for services to be rendered in 2020 and 25,000 for services to be rendered in 2021. Also on that date, options to purchase 26,000 shares were granted to chief financial officer—10,000 for services to be rendered in 2020 and 16,000 for services to be rendered in 2021. The market price of the stock was $23 a share on January 2, 2020. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was $3.20 per option. In 2021, neither the president nor the chief financial officer exercised their options because the market price of the stock was below the exercise price. The market price of the stock was $25 a share on December 31, 2021, when the options for 2020 services lapsed. On December 31, 2022, both president and chief financial officer exercised their options for 25,000 and 16,000 shares, respectively, when the market price was $28 a share. Instructions Prepare the necessary journal entries in 2019 when the stock-option plan was adopted, in 2020 when options were granted, in 2021 when options lapsed, and in 2022 when options were exercised.
Man of War Company adopted a stock-option plan on April 30, 2019, that provided that 500,000 shares of $10 par value stock be designated as available for the granting of options to officers of the corporation at a price of $26 a share. The market price was $20 a share on April 30, 2019.
On January 2, 2020, options to purchase 40,000 shares were granted to president—15,000 for services to be rendered in 2020 and 25,000 for services to be rendered in 2021. Also on that date, options to purchase 26,000 shares were granted to chief financial officer—10,000 for services to be rendered in 2020 and 16,000 for services to be rendered in 2021. The market price of the stock was $23 a share on January 2, 2020. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was $3.20 per option. In 2021, neither the president nor the chief financial officer exercised their options because the market price of the stock was below the exercise price. The market price of the stock was $25 a share on December 31, 2021, when the options for 2020 services lapsed. On December 31, 2022, both president and chief financial officer exercised their options for 25,000 and 16,000 shares, respectively, when the market price was $28 a share.
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