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On November 1, 2020, Whispering Company adopted a stock-option plan that granted options to key executives...

On November 1, 2020, Whispering Company adopted a stock-option plan that granted options to key executives to purchase 33,900 shares of the company’s $10 par value common stock. The options were granted on January 2, 2021, 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 $30, and the fair value option-pricing model determines the total compensation expense to be $508,500. All of the options were exercised during the year 2023: 22,600 on January 3 when the market price was $67, and 11,300 on May 1 when the market price was $77 a share. Prepare journal entries relating to the stock option plan for the years 2021, 2022, and 2023. Assume that the employee performs services equally in 2022 and 2023.

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Date Accounts title and Explanation Debit ($) Credit ($)
01-02-2021 No Entry is required otherwise on exercise date
12/31/2021 Compensation Expense 254,250
  Paid-in Capital-Stock Options 254,250
[To record compensation expense for 2021 (1/2 * $508,500)]
12/31/2022 Compensation Expense 254,250
Paid-in Capital-Stock Options 254,250
[To record compensation expense for 2022 (1/2 * $508,500)]
01-03-2023 Cash (22,600 * $30) 678,000
Paid-in Capital-Stock Options ($508,500* 22,600 /33,900 ) 339,000
Common Stock (22,600 * $10) 226,000
Paid-in Capital in Excess of Par 7,91,000
(To record issuance of 22,600 shares of $10 par value stock upon exercise of options at option price of $30)
05-01-2023 Cash (11,300 * $30) 339,000
Paid-in Capital-Stock Options ($508,500* 11,300 /33,900 ) 169,500
  Common Stock (11,300 * $10) 113,000
  Paid-in Capital in Excess of Par 395,500
(To record issuance of 11,300 shares of $10 par value stock upon exercise of options at option price of $30)

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