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5. On December 1, 2018, Folks Wagon Company adopted a stock-option plan that granted options to key...

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Accounting

5. On December 1, 2018, Folks Wagon Company adopted astock-option plan that granted options

to key executives to purchase 50,000 shares of the company’s $10par value common stock. The

options were granted on January 1, 2019, and were exercisable 3years after the date of grant if the

grantee was still an employee of the company. The optionsexpired 5 years from the date of grant.

The option price was set at $35, and the fair valueoption-pricing model determines the total

compensation expense to be $450,000.

All of the options were exercised during the year 2022: 20,000on February 23 when the market

price was $46, and 30,000 on August 8 when the market price was$85 a share.

a. Prepare the journal entries relating to the stock option planfor the years 2019, 2020, and 2021.

Assume that the employee performs services equally in 2019,2020, and 2021.

b. Prepare the journal entries that record the two events ofexercising the options in 2022.

Answer & Explanation Solved by verified expert
3.8 Ratings (485 Votes)
In stock option plan employees have a option to purchase a companys share at a pre determined price The difference between fair value on that date and the pre determined price will be the expense of company and shown as compensation expense during vesting period Vesting period refers to period between the date on which options were granted January 1 2019 and the date after which employees can exercise Purchase their shares January 1 2022 i e 3 years in this case Employees compensation expense is distributed over the vesting period Employee compensation Given    See Answer
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