On November 1, 2014, Olympic Company adopted a stock-option plan that granted op

Question

On November 1, 2014, Olympic Company adopted a stock-option plan that granted options to key executives to purchase 50,000 shares of the company’s $14 par value common stock. The options were granted on January 2, 2015, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model determines the total compensation expense to be $772,500.

All of the options were exercised during the year 2017: 37,500 on January 3 when the market price was $68, and 12,500 on May 1 when the market price was $79 a share.

Prepare journal entries relating to the stock-option plan for the years 2015, 2016, and 2017. Assume that the employee performs services equally in 2015 and 2016. (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 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

1/2/15

12/31/15

12/31/16

1/3/17

5/1/17

Date

Account Titles and Explanation

Debit

Credit

1/2/15

12/31/15

12/31/16

1/3/17

5/1/17

Explanation / Answer

Journal Entry Date Particulars Dr. Amount Cr. Amount 1/2/15 No entry (total compensation cost is $77500) 12/31/15 Compensation Expense                                 Dr.             386,250    To Paid-in Capital—Stock Options             386,250 (To record compensation expense for 2015 (1/2 X $772500)] 12/31/16 Compensation Expense                                 Dr.             386,250    To Paid-in Capital—Stock Options             386,250 (To record compensation expense for 2015 (1/2 X $772500)] 1/3/17 Cash                                                                        Dr.         1,500,000 Paid-in Capital—Stock Options                  Dr.             579,375       To Common Stock             375,000      To Paid in Capital in Excess of Par          1,704,375 (To record issuance of 37500 shares of $10 par value stock upon exercise of options at option price of $40) 5/1/17 Cash                                                                        Dr.             500,000 Paid-in Capital—Stock Options                  Dr.             193,125       To Common Stock             125,000      To Paid in Capital in Excess of Par             568,125 (To record issuance of 12500 shares of $10 par value stock upon exercise of options at option price of $40)

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.