accounting questionS 1 and 2 Transaction on stock options On January I, 2014 opt
ID: 2451922 • Letter: A
Question
accounting questionS 1 and 2 Transaction on stock options On January I, 2014 options were granted to five executives whereby each might purchase 18,000 shares of the company's S10 par value common stock at $40 per share. A fair value option-pricing model determine total compensation expense to be SI.900,000. The options were non-transferable and the executive had to remain an employee of the company to ex era sc the option. The options were exercisable within a 5-year period beginning January 1, 2016. The service period for this award is 2 years. It is assumed that the option were for service performed equally in 2014 and 2015. On February 1.2016 four executives exercised their options. Transactions on treasury- stocks Ellison Company's balance sheet shows: Common stock, $20 par Paid-in capital in excess of par Paid-in capital from treasury stock Retained earnings Ellison then entered into the following transactions Bought 8.000 shares of its common stock at S29 a share. Sold 4,000 treasury shares at $30 a share. Sold 2,000 shares of treasury stock at $26 a share. Prepare journal entries for the transactions above. Indicate the effect each of the three transactions has on the financial statementExplanation / Answer
ANSWER I
ON 1st Jan, 2014
No Entry Necessary on Grant date.
On 31st Dec, 2014
1. Employee Compensation Expense A/c Dr. $950000
To Employe Stock option [ESO] A/c Cr. $ 950000
[ Being expenses recognised for the first year]
2. Profit & Loss A/c Dr. $ 950000
To Employee Compensation A/c Cr, $ 950000
[ Being amount transferred to P/L A./c]
On feb,2016
1. Bank A/c Dr[18000 * 4*40] $2880000
To ESO A/c Cr. $ 2880000
[ Being Amount received from employees for excercising their options]
2. ESO A/c Dr.[18000 *4 *50, (40 +10)] $ 3600000
To Equity Share Capital A/c cr.[18000 * 4 *10] $ 720000
To Security Premium A/c Cr.[18000* 4 * 40] $ 2880000
[ being shares alloted]
ANSWER II
JOURNAL ENTRY A
CASH A/C DR. $ 232000
TO EQUTY SHARE CAPITAL A/C CR. $160000
TO SECURITY PREMIUM A/C CR $72000
B
CASH A/C DR $120000
TO TREASURY STOCK CR. $ 80000
TO PAID IN CAPITAL FOR TREASURY STOCK CR. $ 40000
C
CASH A/C DR $52000
TO TREASURY STOCK CR. $ 40000
TO PAID IN CAPITAL FOR TREASURY STOCK CR. $ 12000
EFFECT ON TRANSACTIONS
TRANSACTION ASSET LAIBILITIES STOCK HOLDERS EQUITY PAID IN CAPITAL RETAINED EARNINGS A INCREASE INCRESE INCREASE INCREASE INCREASERelated Questions
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