On November 1, 2020, Tamarisk Company adopted a stock-option plan that granted options to key executives to purchase 38,400 shares of the company’s $9 par value common stock. The options were granted on January 2, 2021, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $576,000.All of the options were exercised during the year 2023: 25,600 on January 3 when the market price was $64, and 12,800 on May 1 when the market price was $75 a share.Prepare journal entries relating to the stock option plan for the years 2021, 2022, and 2023. Assume that the employee performs services equally in 2022 and 2023. **Journal Entries for Stock Options and Common Stock Transactions**This example details journal entries for stock options and common stock transactions as part of a company's accounting process. Each entry reflects specific accounting activities, which include the recognition of compensation expenses and the issuance of stock options and stock. A detailed breakdown of the entries is as follows:1. **No Entry** - **Debit:** 0 - **Credit:** 02. **No Entry** - **Debit:** 0 - **Credit:** 03. **Compensation Expense** - **Debit:** 288,000 - **Credit:** Paid-in Capital-Stock Options: 288,0004. **Compensation Expense** - **Debit:** 288,000 - **Credit:** Paid-in Capital-Stock Options: 288,0005. **Cash** - **Debit:** 768,000 - **Credit:** Paid-in Capital-Stock Options: 384,000 - **Credit:** Common Stock: 230,400 - **Credit:** Paid-in Capital in Excess of Par - Common Stock: 153,6006. **Cash** - **Debit:** 384,000 - **Credit:** Paid-in Capital-Stock Options: 192,000 - **Credit:** Common Stock: 115,200 - **Credit:** Paid-in Capital in Excess of Par - Common Stock: 76,800### Explanation of Entries:1. **No Entry Records:** - These indicate that no transaction took place or no journal entry was necessary. 2. **Compensation Expense:** - The debit to "Compensation Expense" represents the cost of the stock options recognized as an expense. - The credit to "Paid-in Capital-Stock Options" represents the equity component for the stock options granted.3. **Issuance of Stock:** - The debit to "Cash" reflects the cash received from employees exercising their stock options. - The credit to "Paid-in Capital-Stock Options" represents the transfer of the stock option equity to common stock and additional paid-in capital. - The credit to "Common Stock" represents the par value of the shares issued. - The credit to "Paid-in Capital in Excess of Par - Common Stock" represents the excess amount over the par value received from the issuance of the

Date Account Titles and Explanation Debit ($) Credit ($) 2/1/2021 No Entry 0 No Entry 0…

Answered: On November 1, 2020, Tamarisk Company…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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On November 1, 2020, Tamarisk Company adopted a stock-option plan that granted options to key executives to purchase 38,400 shares of the company’s $9 par value common stock. The options were granted on January 2, 2021, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $576,000.

All of the options were exercised during the year 2023: 25,600 on January 3 when the market price was $64, and 12,800 on May 1 when the market price was $75 a share.

Prepare journal entries relating to the stock option plan for the years 2021, 2022, and 2023. Assume that the employee performs services equally in 2022 and 2023.

**Journal Entries for Stock Options and Common Stock Transactions**

This example details journal entries for stock options and common stock transactions as part of a company's accounting process. Each entry reflects specific accounting activities, which include the recognition of compensation expenses and the issuance of stock options and stock.

A detailed breakdown of the entries is as follows:

1. **No Entry**
- **Debit:** 0
- **Credit:** 0

2. **No Entry**
- **Debit:** 0
- **Credit:** 0

3. **Compensation Expense**
- **Debit:** 288,000
- **Credit:** Paid-in Capital-Stock Options: 288,000

4. **Compensation Expense**
- **Debit:** 288,000
- **Credit:** Paid-in Capital-Stock Options: 288,000

5. **Cash**
- **Debit:** 768,000
- **Credit:** Paid-in Capital-Stock Options: 384,000
- **Credit:** Common Stock: 230,400
- **Credit:** Paid-in Capital in Excess of Par - Common Stock: 153,600

6. **Cash**
- **Debit:** 384,000
- **Credit:** Paid-in Capital-Stock Options: 192,000
- **Credit:** Common Stock: 115,200
- **Credit:** Paid-in Capital in Excess of Par - Common Stock: 76,800

### Explanation of Entries:

1. **No Entry Records:**
- These indicate that no transaction took place or no journal entry was necessary.

2. **Compensation Expense:**
- The debit to "Compensation Expense" represents the cost of the stock options recognized as an expense.
- The credit to "Paid-in Capital-Stock Options" represents the equity component for the stock options granted.

3. **Issuance of Stock:**
- The debit to "Cash" reflects the cash received from employees exercising their stock options.
- The credit to "Paid-in Capital-Stock Options" represents the transfer of the stock option equity to common stock and additional paid-in capital.
- The credit to "Common Stock" represents the par value of the shares issued.
- The credit to "Paid-in Capital in Excess of Par - Common Stock" represents the excess amount over the par value received from the issuance of the

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