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4 January, 16:19

On January 1, 2021, Cullumber Inc. granted stock options to officers and key employees for the purchase of 21,000 shares of the company's $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2023, by grantees still in the employ of the company, and expiring December 31, 2027. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $328,400. On April 1, 2022, 2,100 options were terminated when the employees resigned from the company. The market price of the common stock was $36 per share on this date. On March 31, 2023, 12,600 options were exercised when the market price of the common stock was $40 per share. Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2021, 2022, and 2023.

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  1. 4 January, 16:32
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    Answer & Explanation:

    December 31, 2021

    Compensation Expense 164,200

    Paid-in Capital (328,400 x 0.5) 164200

    To record compensation expense

    April 1, 2022

    Paid-in Capital 32,840

    Compensation Expense (328,400 x 2100/21000) 32,840

    To record termination of stock option

    December 31, 2022

    Compensation Expense 147,780

    Paid-in Capital (328,40 x 1/2 x 18900/21000) 147,780

    To record compensation expense

    March 31, 2023

    Cash (12,600 x $25) 315,000

    Paid-in Capital (328,400 x 12,600/21,000) 197040

    Common Stock (21,000 x $10) 126,000

    Paid-in Capital in Excess of Par 386,040

    To record exercise of stock option

    December 31, 2023

    6,300 stock options not exercised (21,000 - 2,100 - 12,600)
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