5. Prepare the appropriate journal entry to record the vesting of the restricted
ID: 2567043 • Letter: 5
Question
5. Prepare the appropriate journal entry to record the vesting of the restricted stock assuming the forfeiture occurred in the last year. Stock options Prepare the necessary entries from 1/1/16-2/1/18 for the following events using the fair value method. If no entry is needed, write "No Entry Necessary." 1. On 1/1/16, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 18,000 shares of common stock at $40 per share. The par value is $10 per share. 2. On 2/1/16, options were granted to each of five executives to purchase 18,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/18. It is assumed that the options were for services performed equally in 2016 and 2017. The Black-Scholes option pricing model determines total compensation expense to be $2,100,000. 3. At 2/1/18, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.Explanation / Answer
Journal Entries for Stock Options
Date
Particulars
Dr. Amount (In $)
Cr. Amount (In $)
01/01/2016
NO ENTRY
(Since the company has only opted for the stock options)
01/02/2016
NO ENTRY
(Since the options are only granted and not exercised)
31/12/2016
Compensation Expense
TO Additional paid-in capital- stock options
(Being the expense to be booked for the stock options) (See Note 1)
1,050,000
1,050,000
31/12/2017
Compensation Expense
TO Additional paid-in capital- stock options
(Being the expense to be booked for the stock options) (See Note 1)
1,050,000
1,050,000
01/02/2018
Cash (18,000 x $40 per share x 4)
Additional paid-in capital- stock options
TO Common Stock (18000 x $10 per share x 4)
TO Additional Paid- in capital – Common Stock
(Being options exercised by 4 directors)
2,880,000
1,680,000
720,000
3,840,000
01/02/2018
Additional paid-in capital- stock options
TO Compensation Expense
420,000
420,000
NOTE 1: At the end of each year till the vesting date, company is required to be book the compensation expense on the stock options granted to the directors.
Compensation Expense to be booked each year = Total Compensation Expense / Number of years of vesting
= 2,100,000 / 2 = $1,050,000
NOTE: At the end of the period, 4 directors purchased 18,000 shares at $40 per share and therefore, amount equivalent to $2,100,000 / 5 x 4 = 1,680,000 is reversed from Additional paid in capital Stock options account. Remaining additional capital of 1 director is reversed on forfeiture.
Date
Particulars
Dr. Amount (In $)
Cr. Amount (In $)
01/01/2016
NO ENTRY
(Since the company has only opted for the stock options)
01/02/2016
NO ENTRY
(Since the options are only granted and not exercised)
31/12/2016
Compensation Expense
TO Additional paid-in capital- stock options
(Being the expense to be booked for the stock options) (See Note 1)
1,050,000
1,050,000
31/12/2017
Compensation Expense
TO Additional paid-in capital- stock options
(Being the expense to be booked for the stock options) (See Note 1)
1,050,000
1,050,000
01/02/2018
Cash (18,000 x $40 per share x 4)
Additional paid-in capital- stock options
TO Common Stock (18000 x $10 per share x 4)
TO Additional Paid- in capital – Common Stock
(Being options exercised by 4 directors)
2,880,000
1,680,000
720,000
3,840,000
01/02/2018
Additional paid-in capital- stock options
TO Compensation Expense
420,000
420,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.