Question

On July 1, 2018, Stellar Company adopted a stock option plan that granted options to key executives to purchase 100,000 shares of the company’s $1 par value common stock. The options were granted on January 1, 2019, and were exercisable 3 years after the date of grant if the grantee was still an employee of the company. The options expired 4 years from date of grant. The option price was set at $66, and the fair value option pricing model determines the total compensation expense to be $660,000. The company’s fiscal year end is December 31. All of the options were exercised February 1, 2022, when the market price was $78 a share.

1.) What account and its amount is on the balance sheet related to the options as of December 31, 2020? On which section does this appear?

2.) What account and its amount is on the income statement related to the options for the year ended December 31, 2020? On which section does this appear?

Answer 1

1.)	Balance Sheet
	As on December 31,2020
	Account Name	Additional paid in Capital -Stock Options
	Amount	$ 440,000	(660000*2/3)
	Section	Stockholder’s equity account
2.)	Income Statement
	For the year ended December 31,2020
	Account Name	Compensation Expense
	Amount	$ 220,000	(660000*1/3)
	Section	Operating Expense ( Non-cash expense)