Question

On January 1, 2021, a company granted stock options to employees for the purchase of 20,000 shares. Each option allows the employees to purchase one share of the company's $4 par common stock at $33 per share. The options are exercisable during a six-year period beginning January 1, 2025 by grantees still employed by the company. The Black-Scholes option pricing model determines total compensation expense to be $199,000. The market price of common stock was $15 per share at the date of grant.

On September 1, 2026, 8,000 options are exercised when the market price of common stock was $66. As a result of the option exercises, what is the amount for Paid-in Capital in Excess of Par-c/s the company will record?

Answer 1

The company will record $ 311,600  for Paid-in Capital in Excess of Par-c/s

The Journal Entry will be as below

Particulars	Debit	Credit
Cash (8000 shares *$ 33)	264,000.00
Paid in Capital Stock Options ($199000/20000*8000)	79,600.00
Common Stock ( 8000 shares*$ 4 par value)		32,000.00
Paid In Capital In Excess of Par -C/S		311,600.00

Working

	Paid In Capital In Excess of Par -C/S
Add	8000 shares * ($199000/20000 shares)	79,600
Add	8000 shares * ($33-$4) Excess over Par Value	232,000
	Total	$311,600