Question

On January 1, 2019, Nash Corporation granted 9,600 options to key executives. Each option allows the executive to purchase one share of Nash’s $5 par value common stock at a price of $21 per share. The options were exercisable within a 2-year period beginning January 1, 2021, if the grantee is still employed by the company at the time of the exercise. On the grant date, Nash’s stock was trading at $24 per share, and a fair value option-pricing model determines total compensation to be $438,000.
On May 1, 2021, 7,440 options were exercised when the market price of Culver’s stock was $30 per share. The remaining options lapsed in 2023 because executives decided not to exercise their options.
Prepare the necessary journal entries related to the stock option plan for the years 2019 through 2023.

Answer 1

Answer:

Dec 31 2019

Dr Compensation Expenses 219,000

Cr Paid in Capital- Stock Options 219,000

Dec 31 2020

Dr Compensation Expenses 219,000

Cr Paid in Capital- Stock Options 219,000

Dec 31 2021

Dr Cash 256,200

Dr Paid in Capital- Stock Options 339,450

Dr Common Stock 37,200

Cr Paid in capital in excess of par common stock 632,850

Dec 31, 2023

Dr Paid in capital stock options 98,550

Paid in capital Expired Stock Options 98,550

Explanation:

Nash Corporation

Dec 31 2019

Dr Compensation Expenses 219,000

Cr Paid in Capital- Stock Options 219,000

( 438,000/2 years)

Dec 31 2020

Dr Compensation Expenses 219,000

Cr Paid in Capital- Stock Options 219,000

Dec 31 2021

Dr Cash 256,200

(219,000+37,200)

Dr Paid in Capital- Stock Options 339,450

Dr Common Stock 37,200

Cr Paid in capital in excess of par common stock 632,850

Dec 31, 2023

Dr Paid in capital stock options 98,550

(438,000×22.5%)

Paid in capital Expired Stock Options 98,550

Computation of Paid in capital stock options

438,000×77.5%= $339,450

Common stock 7,440 X 5 per share

= 37,200

Stock options redeemed 7,440/9,600= 77.5%