Exercise 16-12 On January 1, 2016, Sunland Corporation granted 10,800 options to

Question

Exercise 16-12 On January 1, 2016, Sunland Corporation granted 10,800 options to key executives. Each option allows the executive to purchase one share of Sunland's $5 par value common stock at a price of $20 per share. The options were exercisable within a 2-year period beginning January 1, 2018, if the grantee is still employed by the company at the time of the exercise. On the grant date, Sunland's stock was trading at $26 per share, and a fair value option-pricing model determines total compensation to be $431,000 On May 1, 2018, 8,640 options were exercised when the market price of Sunland's stock was $31 per share. The remaining options lapsed in 2020 because executives decided not to exercise their options. Prepare the necessary journal entries related to the stock option plan for the years 2016 through 2020. (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.)

Explanation / Answer

JOURNAL ENTRY Date Account Title Debit Credit December 31, 2016 Stock Option Compensation expense $215,500 (431000/2) Paid in Capital-Stock Option $215,500 December 31, 2017 Stock Option Compensation expense $215,500 (431000/2) Paid in Capital-Stock Option $215,500 May 1, 2018 Cash $        172,800 Paid in Capital-Stock Option $        344,800 (8640/10800)*431000 Common Stock $        43,200 (8640*5) Additional Paid in Capital-Common Stock $     474,400 (172800+344800-43200) January 1, 2020 Paid in capital-Stock Options $          86,200 (431000-344800) Paid in Capital-Expired stock options $        86,200 (To record Options Lapsed)

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