On January 2, 2017, Dwyer Corporation granted 10,000 nonqualified stock options each to four of its...

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On January 2, 2017, Dwyer Corporation granted 10,000nonqualified stock options each to four of its key executives(40,000 options in total). Under the terms of the option plan, uponexercise, each executive will pay the exercise price of $10 pershare of common stock ($1 par value). The options were exercisableafter January 1, 2020, and the executives were required to beemployees of Dwyer at the date of exercise. The Black–Scholes valueof the option on the grant date is $12.50. Three employeesexercised options for 30,000 shares of stock on January 2, 2021.Dwyer has a tax rate of 35% in all years. Relevant dates and stockprices are as follows:
January 2, 2017 $ 10
December 31, 2017 19
December 31, 2018 28
December 31, 2019 45
December 31, 2020 26
January 2, 2021 26
December 31, 2021 25
Required:
Prepare the compensation expense and related tax journal entriesfrom 2017 to 2019.
Prepare the journal entries required to record the stock optionexercise on January 2, 2021. Include the journal entries to recordthe tax effects.
Prepare a schedule to show how the January 2, 2021, optionexercise affects Dwyer’s 2021 income tax expense.

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Compensation cost is the Fair value of service represented by the fair value of the option granted in return of the service In this case fair value of service is the price of the share at the grant date ie 1250 Calculation of compensation expense for vesting period of 3 years Number of option Fair value of option at grant 400001250 See Answer

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On January 2, 2017, Dwyer Corporation granted 10,000nonqualified stock options each to four of its key executives(40,000 options in total). Under the terms of the option plan, uponexercise, each executive will pay the exercise price of $10 pershare of common stock ($1 par value). The options were exercisableafter January 1, 2020, and the executives were required to beemployees of Dwyer at the date of exercise. The Black–Scholes valueof the option on the grant date is $12.50. Three employeesexercised options for 30,000 shares of stock on January 2, 2021.Dwyer has a tax rate of 35% in all years. Relevant dates and stockprices are as follows:January 2, 2017$10December 31, 201719December 31, 201828December 31, 201945December 31, 202026January 2, 202126December 31, 202125Required:Prepare the compensation expense and related tax journal entriesfrom 2017 to 2019.Prepare the journal entries required to record the stock optionexercise on January 2, 2021. Include the journal entries to recordthe tax effects.Prepare a schedule to show how the January 2, 2021, optionexercise affects Dwyer’s 2021 income tax expense.


January 2, 2017	$	10
December 31, 2017		19
December 31, 2018		28
December 31, 2019		45
December 31, 2020		26
January 2, 2021		26
December 31, 2021		25