Question

Prepare the necessary entries from 1/1/17-2/1/19 for the following events using the fair value method. If no entry is needed, write "No Entry Necessary."

A. On 1/1/17, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 30,000 shares of common stock at $40 per share. The par value is $10 per share.

B. On 2/1/17, options were granted to each of five executives to purchase 30,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/19. It is assumed that the options were for services performed equally in 2017 and 2018. The Black-Scholes option pricing model determines total compensation expense to be $3,200,000.

C. At 2/1/19, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.

Answer 1

	Journal Entries				(Amount in $)
	Date		Description		Debit		Credit
	1.1.17		No Entry Necessary on 1.1.17
	2.1.17		No Entry Necessary on 2.1.17
	31.12.17		Employee Compensation Exp a/c		1600000
			To ESOP Out standing amount				1600000
	31.12.18		Employee Compensation Exp a/c		1600000
			To ESOP Out standing amount				1600000
	2.1.19		ESOP Out Standing amount a/c(3200000*4/5)			2560000
			To Equity Share Capital(120000*10)				1200000
			To Securities Premium a/c				1360000
	2.1.19		ESOP Out standing amount a/c		640000
			To Employee Compensation Exp				640000
	31.12.19		Profit & Loss a/c		2560000
			To Employee Compensation				2560000