Answer:
On 31 December 2019: Debit Compensation expense for $39,667; and Credit Paid-in capital from share options for $39,667.
On 31 December 2020: Debit Compensation expense for $39,667; and Credit Paid-in capital from share options for $39,667.
On 31 December 2021: Debit Compensation expense for $41,067; and Credit Paid-in capital from share options for $41,067.
On 06 January 2022: Debit Cash for $48,000; Debit Paid-in capital from share options for $22,400; Credit Common stock for $3,200; and Credit Paid in capital in excess of par- common stock (balancing figure) for $67,200.
Explanation:
Note: See part b of the the attached excel file for the journal entries
Also note that before the journal entries are recorded, the current compensation expense for year 2019, 2020 and 2021 are first calculated. See part a of the attached excel file for the calculation of the the current compensation expense for year 2019, 2020 and 2021.
In part a of the attached excel file, the estimated compensation cost for 2019, 2020 and 2021 are calculated as follows:
Estimated compensation cost for 2019 = Option value on the grant date * Number of executives * (1 - Expected option forfeited rate) * Number of shares in the option = $14 * 50 * (1 - 15%) * 200 = $119,000
Estimated compensation cost for 2020 = Option value on the grant date * Number of executives * (1 - Expected option forfeited rate) * Number of shares in the option = $14 * 50 * (1 - 15%) * 200 = $119,000
Estimated compensation cost for 2021 = Option value on the grant date * (Number of executives - Actual executives turnover for the entire service period) * Number of shares in the option = $14 * (50 - 7) * 200 = $120,400
On 06 January 2022, the calculation of the entries used in the part b of the attached excel file are as follows:
w.1. Cash = Number of executives who exercise their options * Number of shares in the option * Purchase price per share after completing a 3-year service period = (8 * 200 * $30) = $48,000
w.2. Paid-in capital from share options = Number of executives who exercise their options * Number of shares in the option * Option value on the grant date = (8 * 200 * 14) = $22,400
w.3. Common Stock = Number of executives who exercise their options * Number of shares in the option * Sahre par value = (8 * 200 * $2) = $3,200
w.4. Paid in capital in excess of par- common stock (balancing figure) = Cash + Paid-in capital from share options - Common Stock = $48,000 + $22,400 - $3,200 = $67,200
