Wall Drugs offered an incentive stock option plan to its employees. On January 1

Question

Wall Drugs offered an incentive stock option plan to its employees. On January 1, 2016, 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, 2019, and expire December 31, 2020. Each option has a fair value of $1 based on an option pricing model. Which is the correct entry to record the exercise of 90% the options on April 15, 2019, when the market price of the stock was $8?

A) Cash

B) Cash

A) Cash

270,000 Paid in Capital-stock options 54,000 Common Stock 60,000 Paid in Capital-excess of par 264,000

B) Cash

270,000 Paid in Capital-stock options 54,000 Compensation Expense 108,000 Common Stock 54,000 Paid in Capital excess of par 378,000 C) Cash 270,000 Paid in capital- stock options 54,000 Common Stock 54,000 Paid in capital- excess of par 270,000 D) Cash 378,000 Paid in capital-stock options 54,000 Common Stock 54,000 Paid in capital-excess of par 378,000

Explanation / Answer

Correct answer is C. C) Cash (60000*90%*5) 270,000 Paid in capital- stock options 54,000 (60000*90%*1) Common Stock 54,000 Paid in capital- excess of par 270,000 (60000*90%*5)

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