Question

On January 1, 2020, Carla Vista Corporation granted 16,800 options to key executives. Each option allows the executive to purchase one share of Carla Vista’s common shares at a price of $21 per share. The options were exercisable within a two–year period beginning January 1, 2022, if the grantee was still employed by the company at the time of the exercise. On the grant date, Carla Vista’s shares were trading at $17 per share, and a fair value options pricing model determined total compensation to be $710,000. Management has assumed that there will be no forfeitures because they do not expect any of the key executives to leave.

On May 1, 2022, 5,040 options were exercised when the market price of Carla Vista’s shares was $28 per share. The remaining options lapsed in 2023 because executives decided not to exercise them. Management was indeed correct in their assumption regarding forfeitures in that all executives remained with the company. Assume that Carla Vista follows IFRS.

QUESTION:

Prepare the necessary journal entries related to the stock option plan for the years ended December 31, 2020 through 2023.

Date	Account Titles and Explanation	Debit	Credit
1/1/20	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
12/31/20	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
12/31/21	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
5/1/22	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
12/31/23	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount

Answer 1

	Date	Account Titles	Debit $	Credit $
	1/1/20	No Journal Entry
	12/31/20	Compensation Expense	355,000
		Paid in Capital-Stock Options		355,000
		(710,000 / 2)
	12/31/21	Compensation Expense	355,000
		Paid in Capital-Stock Options		355,000
		(710,000 / 2)
	5/1/22	Cash (5,040 x 21)	105,840
		Paid in Capital-Stock Options	213,000
		( 710,000 x 5,040 ) / 16,800
		Common Shares		318,840
	12/31/22	Paid in Capital-Stock Options	497,000
		( 710,000 - 213,000 )
		Paid in Capital-Expired Stock Options		497,000