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 compensation expense for the year 2021?

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

Compensation expenses Dr, $20,000

((60,000 × $1) ÷ 3 years

      To Paid in capital - Stock options $20,000

(Being compensation expense for the year 2021 is recorded)

To record compensation expenses for the year 2021 we simply debited the compensation expenses as it increases the expenses while we credited the paid-in capital - stock option as it increases the equity.