Question

Drugs offers an incentive stock option plan to its employees. On January 1, 2021, options were granted for 80,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2024, and expire December 31, 2025. Each option has a fair value of $1 based on an option pricing model. Which is the correct entry to record the exercise of 96% of the options on April 15, 2024, when the market price of the stock was $9?

Answer 1

Accounts Title and Explanation	Debit (in $)	Credit (in $)
Cash ($ 80,000 x 96 % x ($9 (-) $1 )	$614,400
Paid in capital - Stock options ($ 80,000 x 96 %)	$76,800
Common stock		$76,800
Paid in capital - excess of par		$614,400
(To record the exercise of Options)