On January 1, 2018, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 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, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $350,000.

On April 1, 2019, 2,000 options were terminated when the employees resigned from the company. The market price of the common stock was $35 per share on this date.

On March 31, 2020, 12,000 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, 2018, 2019, and 2020.

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Business

Aubrey Carpenter

11 October, 12:45

On January 1, 2018, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 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, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $350,000.

On April 1, 2019, 2,000 options were terminated when the employees resigned from the company. The market price of the common stock was $35 per share on this date.

On March 31, 2020, 12,000 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, 2018, 2019, and 2020.

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Linda Beasley · Answer 1

Date General Journal Debit Credit

Jan 1 2018 No Entry when granting

Dec 31 2018 Compensation Expense ($350,000/2 Years) $175,000

Paid in Capital Stock Options $175,000

(for Year 2018 - compensation expense)

Apr 1 2019 Paid in Capital Stock Options $ 17,500

Compensation Expense $ 17,500

(To record termination of stock options)

$350,000*2,000/20,000*1/2

Dec 31 2019 Compensation Expense ($350,000/2 Years) $157,500

Paid in Capital Stock Options $157,500

(for Year 2019 - compensation expense)

$350,000*18,000/20,000*1/2

Mar 31 2020 Cash (12,000*$25) $300,000

Paid in Capital Stock Options ($350,000*12,000/20,000) $210,000

Common Stock (12,000*$10) $120,000

Paid in capital, in excess of par-Common $390,000

(To record exercise of stock options)