Question

Wall Drugs offered an incentive stock option plan to its employees. On January 1, 2021, options were granted for 60,000 $1 par common shares. The exercise price equals the $5 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2024, and expire December 31, 2025. Each option has a fair value of $1 based on an option pricing model.

Which is the correct entry to record the exercise of 90% the options on April 15, 2024, when the market price of the stock was $8?

Answer 1

The correct entry to record the exercise of 90% the options on April 15, 2024, when the market price of the stock was $8 is as follows:

Date	Account and Explanation	Debit($)	Credit($)
April 15, 2024	Cash (60,000 * 90%* $5)	270,000
	Paid in Capital - Stock Option (60,000 * 90%)	54,000
	Common Stock (60,000 * 90%* $1)		54,000
	Paid in Capital excess of par		270,000
	(Recorded the entry of exercise of 90% the options )