Question

On January 1, 2018, AAA granted stock options for 60,000 shares of its $10 par value common
stock to its key employees. The market price of the common stock on that date was $23 per share
and the option price was $20. The Black-Scholes option pricing model determines total
compensation expense to be $630,000. The options are exercisable beginning January 1, 2021,
provided those key employees are still in AAA’s employ at the time the options are exercised. The
options expire on January 1, 2022. Prepare adjusting journal entries, if any, to recognize stock
options in 2020.

Answer 1

Total expense = 630000

vesting period = 3 years

each year expense to be recognised = 630000/3 = 210000

Jounal Entry

Date	Particulars	Debit ($)	Credit ($)
31.12.2018	Employee benefit Expense (P/L acc)	210000
	To Share based Payment - Equity		210000
	(Being proportionate share of expense recorded against Other Equity)
31.12.2019	Employee benefit Expense (P/L acc)	210000
	To Share based Payment - Equity		210000
	(Being proportionate share of expense recorded against Other Equity)
31.12.2020	Employee benefit Expense (P/L acc)	210000
	To Share based Payment - Equity		210000
	(Being proportionate share of expense recorded against Other Equity)