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? Multiple Choice a.Compensation expense 12,000 Paid-in capital—stock options 12,000 b.Compensation expense 20,000 Common stock 20,000 c.Compensation expense 20,000 Paid-in capital—stock options 20,000 d.Compensation expense 80,000 Paid-in capital—stock options 80,000

Answer 1

Answer:

The Journal entry and their narrations is shown below:-

Explanation:

The Journal Entry is shown below:-

Compensation expense Dr,             $20,000

(60,000 × 1) ÷ 3

    To Paid-in capital - stock options        $20,000

(Being compensation expense is recorded)

Therefore For recording the compensation expense we simply debited the compensation expenses and credited the Paid-in-Capital