Exercise 16-11 On January 1, 2018, Sarasota Inc. granted stock options to office

Question

Exercise 16-11 On January 1, 2018, Sarasota Inc. granted stock options to officers and key employees for the purchase of 24,000 shares of the company's $10 par common stock at $24 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 $359,400. On April 1, 2019, 2,400 options were terminated when the employees resigned from the company. The market price of the common stock was $34 per share on this date On March 31, 2020, 14,400 options were exercised when the market price of the common stock was $39 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. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit Mar. 31, 2020

Explanation / Answer

01 Jan 18

No entry - this is the date of grant

31 dec 18

Compensation Expense $179,700

Paid-in Capital Stock Options $179,700

($359,400 x 1/2)

To record compensation expense for 2018

1-Apr-19

Paid-in Capital Stock Options $17,970

Compensation Expense $17,970

($179,700 x 2,400 / 24,000)

To record termination of stock options held by resigned employees.

31 -dec 16

Compensation Expense $161,730

Paid-in Capital Stock Options $161,730

($359,400 x 1/2 x 21,600/24,000)

To record compensation expense for 2019

31-March-2020

Cash (14,400 x $24) $345,600

Paid-in-Capital -Stock options $215,640

($359,400 x 14,400/24000)

Common Stock $144,000

Paid-in Capital in Excess of Par $417,240

To Record exercise of stock options

Note: There are 7,200 options unexercised as of 31/3/2020 (24,000 - 2,400 - 14,400)

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