Question

On January 1, 2018, Pronghorn Inc. granted stock options to officers and key employees for the purchase of 22,000 shares of the company’s $10 par common stock at $26 per share. The options were exercisable within a 5-year period beginning January 1, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $318,000. On April 1, 2019, 2,200 options were terminated when the employees resigned from the company. The market price of the common stock was $36 per share on this date. On March 31, 2020, 13,200 options were exercised when the market price of the common stock was $42 per share. Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2018, 2019, and 2020

Answer 1

Date	Accounts	Debit	Credit
01-Jan-18	No entry - this is the date of grant
31-Dec-18	Compensation Expense	$159,000
	Paid-in Capital—Stock Options ($318,000 * 1/2)		$159,000
1-Apr-19	Paid-in Capital—Stock Options	$15,900
	Compensation Expense   ($159,000 X 2,200/22,000)		$15,900
31-Dec-19	Compensation Expense	$143,100
	Paid-in Capital—Stock Options ($318,000 * (1/2) X (19800/22000)		$143,100
31-Mar-20	Cash (13,200 X $26)	$343,200
	Paid-in Capital—Stock Options ($318,000 X 13,200/22,000)	$190,800
	Common Stock		$132,000
	Paid-in Capital in Excess of Par		$402,000