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Exercise 16-10 On November 1, 2017, Pharoah Company adopted a stock-option plan that granted options to...

Exercise 16-10

On November 1, 2017, Pharoah Company adopted a stock-option plan that granted options to key executives to purchase 37,500 shares of the company’s $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model determines the total compensation expense to be $562,500.

All of the options were exercised during the year 2020: 25,000 on January 3 when the market price was $66, and 12,500 on May 1 when the market price was $75 a share.

Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019.

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