Accounting for Stock Options On April 1 of Year 1, Badger Corp. announced a stock option incentive plan for its top executives. The plan provides certain executives stock options for the company's common stock. Each option allows for the purchase of one share of common stock, par $1, at a standard option price of $25 per share. The rights are nontransferable and are exercisable three years after the grant date and prior to five years from the grant date. Continuing employment is required through the exercise date, and the requisite service period ends on the first possible exercise date. On April 1 of Year 1, 4,000 options were granted to employees when the market price was $30 per share. Using an option-pricing model, the fair value of the options granted was $36,000. Employees exercised 2,400 options on June 30 of Year 4, when the market price of the stock was $45 per share. a. Compute the total amount of compensation cost for the grant made on April 1 of Year 1. $36,000 b. Record the entry for compensation expense on December 31 of Year 1, Badger's year-end. c. Record the entry for the exercise of options on June 30 of Year 4. Date b. Dec. 31, Year 1 Compensation Expense Account Paid-in Capital-Stock Options To record compensation expense. c. June 30, Year 4 Cash Paid-in Capital-Stock Options Common Stock Paid-in Capital in Excess of Par-Common Stock To record exercise of stock options, v > > > > Dr. 12,000 0 60,000 36,000 0 0 Cr. 0x 12,000 x 0✓ 0x 2,400 ✓ 0x
Accounting for Stock Options On April 1 of Year 1, Badger Corp. announced a stock option incentive plan for its top executives. The plan provides certain executives stock options for the company's common stock. Each option allows for the purchase of one share of common stock, par $1, at a standard option price of $25 per share. The rights are nontransferable and are exercisable three years after the grant date and prior to five years from the grant date. Continuing employment is required through the exercise date, and the requisite service period ends on the first possible exercise date. On April 1 of Year 1, 4,000 options were granted to employees when the market price was $30 per share. Using an option-pricing model, the fair value of the options granted was $36,000. Employees exercised 2,400 options on June 30 of Year 4, when the market price of the stock was $45 per share. a. Compute the total amount of compensation cost for the grant made on April 1 of Year 1. $36,000 b. Record the entry for compensation expense on December 31 of Year 1, Badger's year-end. c. Record the entry for the exercise of options on June 30 of Year 4. Date b. Dec. 31, Year 1 Compensation Expense Account Paid-in Capital-Stock Options To record compensation expense. c. June 30, Year 4 Cash Paid-in Capital-Stock Options Common Stock Paid-in Capital in Excess of Par-Common Stock To record exercise of stock options, v > > > > Dr. 12,000 0 60,000 36,000 0 0 Cr. 0x 12,000 x 0✓ 0x 2,400 ✓ 0x
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter15: Shareholders’ Equity: Capital Contributions And Distributions
Section: Chapter Questions
Problem 30P
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Transcribed Image Text:Accounting for Stock Options
On April 1 of Year 1, Badger Corp. announced a stock option incentive plan for its top executives. The plan provides certain executives stock options for the company's common stock.
Each option allows for the purchase of one share of common stock, par $1, at a standard option price of $25 per share. The rights are nontransferable and are exercisable three years
after the grant date and prior to five years from the grant date. Continuing employment is required through the exercise date, and the requisite service period ends on the first possible
exercise date.
On April 1 of Year 1, 4,000 options were granted to employees when the market price was $30 per share. Using an option-pricing model, the fair value of the options granted was
$36,000. Employees exercised 2,400 options on June 30 of Year 4, when the market price of the stock was $45 per share.
.
a. Compute the total amount of compensation cost for the grant made on April 1 of Year 1.
$ 36,000 ✔
b. Record the entry for compensation expense on December 31 of Year 1, Badger's year-end.
c. Record the entry for the exercise of options on June 30 of Year 4.
Date
b. Dec. 31, Year 1 Compensation Expense
Account
Paid-in Capital-Stock Options
To record compensation expense.
c. June 30, Year 4 Cash
Paid-in Capital-Stock Options
Common Stock
Paid-in Capital in Excess of Par-Common Stock
To record exercise of stock options,
V
V
V
V
V
V
Dr.
12,000
0
60,000
36,000
0
0
Cr.
0x
12,000 x
0
0x
2,400✓
0x
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