Question

On January 1, 2020, Barwood Corporation granted 5,000 options to executives. Each option entitles the holder to purchase one share of Barwood'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 $65 per share on the date of grant. The fair value of the options at the grant date is $150,000. The period of benefit is 2 years. Prepare Barwood's journal entries for January 1, 2020, and December 31, 2020 and 2021

Answer 1

Answer and Explanation:

The journal entries are shown below;

On Jan 1, 2020

No journal entry is required

On Dec 31, 2020

Compensation expense Dr ($150,000 ÷ 2) $75,000

       To paid in capital stock option $75,000

(Being compensation expense is recorded)

On Dec 31, 2021

Compensation expense Dr ($150,000 ÷ 2) $75,000

       To paid in capital stock option $75,000

(Being compensation expense is recorded)