On December 1, 2018, Folks Wagon Company adopted a stock-optionplan that granted options to key executives to purchase 50,000shares of the company’s $10 par value common stock. The optionswere granted on January 1, 2019, and were exercisable 3 years afterthe date of grant if the grantee was still an employee of thecompany. The options expired 5 years from the date of grant. Theoption price was set at $35, and the fair value option-pricingmodel 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 August8 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 employeeperforms services equally in 2019, 2020, and 2021.
b. Prepare the journal entries that record the two events ofexercising the options in 2022.
