Prepare journal entries relating to the stock option plan on the following dates using the fair value method. If no entry is needed, write "No Entry Necessary." Show your work for partial credits.On November 1, 2019, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 30,000 shares of common stock at $40 per share. The par value is $10 per share.On January 1, 2020, options were granted to each of five executives to purchase 30,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. It is assumed that the options were for services performed equally in 2020 and 2021. The Black-Scholes option pricing model determines total compensation expense to be $3,200,000.At February 1, 2022, four executives exercised their options.The fifth executive chose not to exercise his options, which therefore were forfeited on January 1, 2028

Compensation expense=$3,200,0002=$1,600,000

Answered: Prepare journal entries relating to the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Prepare journal entries relating to the stock option plan on the following dates using the fair value method. If no entry is needed, write "No Entry Necessary." Show your work for partial credits.

On November 1, 2019, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 30,000 shares of common stock at $40 per share. The par value is $10 per share.
On January 1, 2020, options were granted to each of five executives to purchase 30,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. It is assumed that the options were for services performed equally in 2020 and 2021. The Black-Scholes option pricing model determines total compensation expense to be $3,200,000.
At February 1, 2022, four executives exercised their options.
The fifth executive chose not to exercise his options, which therefore were forfeited on January 1, 2028

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