(Issuance and Exercise of Stock Options) On November 1, 2007, Columbo Company adopted a stock option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2008, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option pricing model determines the total compensation expense to be $450,000.
All of the options were exercised during the year 2010: 20,000 on January 3 when the market price was $67, and 10,000 on May 1 when the market price was $77 a share.
Hint: (LO 4)
Instructions
Prepare journal entries relating to the stock option plan for the years 2008, 2009, and 2010. Assume that the employee performs services equally in 2008 and 2009
1/2/08 No entry (total compensation cost is $450,000)
12/31/08 Compensation Expense………………………………………………………………….. 225,000
Paid-in Capital—Stock Options…………………………………………………. 225,000
[To record compensation expense
for 2008 (1/2 X $450,000)]
12/31/09 Compensation Expense…………………………………………….. 225,000
Paid-in Capital—Stock Options……………………….. 225,000
[To record compensation expense
for 2009 (1/2 X $450,000)]
1/3/10 Cash (20,000 X $40)…………………………………………………. 800,000
Paid-in Capital—Stock Options………………………………… 300,000
($450,000 X 20,000/30,000)
Common Stock (20,000 X $10)…………………………. 200,000
Paid-in Capital in Excess of Par………………………. 900,000
(To record issuance of 20,000
shares of $10 par value stock
upon exercise of options at
option price of $40)
5/1/10 Cash (10,000 X $40)…………………………………………………………. 400,000
Paid-in Capital—Stock Options……………………………………….. 150,000
($450,000 X 10,000/30,000)
Common Stock……………………………………………………….. 100,000
Paid-in Capital in Excess of Par………………………………. 450,000
(To record issuance of 10,000
shares of $10 par value stock
upon exercise of options at
option price of $40)
