Question

On January 1, 2020, Ayayai Corporation granted 5,100 options to executives. Each option entitles the holder to purchase one share of Ayayai's $5 par value common stock at $50 per share at any time during the next 5 years. The market price of the stock is $70 per share on the date of grant. The fair value of the options at the grant date is $143,000. The period of benefit is 2 years. Prepare Ayayai's journal entries for January 1, 2020, and December 31, 2020 and 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit

Answer 1

Explanation:

The journal entries are as follows

On January 1, 2020

No entry is required

On December 31, 2020

Compensation expenses Dr $71,500

      To Paid in capital - stock options $71,500

(Being the compensation expense is recorded)

On December 31, 2021

Compensation expenses Dr $71,500

      To Paid in capital - stock options $71,500

(Being the compensation expense is recorded)

The computation is shown below:

= $143,000 ÷ 2 years

= $71,500