(Issuance, Exercise, and Termination of Stock Options) On January 1, 2008, 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, 2010, by grantees still in the employ of the company, and expiring December 31, 2014. 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, 2009, 2,000 options were terminated when the employees resigned from the company. The market value of the common stock was $35 per share on this date.
On March 31, 2010, 12,000 options were exercised when the market value of the common stock was $40 per share.
Hint: (LO 4)
Instructions
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, 2008, 2009, and 2010.
1/1/08 No entry
12/31/08 Compensation Expense……………………………………………………. 175,000
Paid-in Capital—Stock Options…………………………… 175,000
($350,000 X 1/2) (To recognize
compensation expense for 2008)
4/1/09 Paid-in Capital—Stock Options……………………………………….. 17,500
Compensation Expense………………………………………. 17,500
($175,000 X 2,000/20,000)
(To record termination of stock
options held by resigned employees)
12/31/09 Compensation Expense……………………………………………………. 157,500
Paid-in Capital—Stock Options…………………………… 157,500
($350,000 X 1/2 X 18/20) (To recognize
compensation expense for 2009)
3/31/10 Cash (12,000 X $25)………………………………………………………… 300,000
Paid-in Capital—Stock Options……………………………………….. 210,000
($350,000 X 12,000/20,000)
Common Stock…………………………………………………… 120,000
Paid-in Capital in Excess of Par………………………….. 390,000
(To record exercise of stock options)
Note: There are 6,000 options unexercised as of 3/31/10 (20,000 – 2,000 – 12,000).
