On January 1, 2016, Vaughn Cor
On January 1, 2016, Vaughn Corporation granted 10,300 options tokey executives. Each option allows the executive to purchase oneshare of Vaughn’s $5 par value common stock at a price of $21 pershare. The options were exercisable within a 2-year periodbeginning January 1, 2018, if the grantee is still employed by thecompany at the time of the exercise. On the grant date, Vaughn’sstock was trading at $26 per share, and a fair value option-pricingmodel determines total compensation to be $403,000.On May 1, 2018, 8,240 options were exercised when the market priceof Vaughn’s stock was $31 per share. The remaining options lapsedin 2020 because executives decided not to exercise theiroptions.Prepare the necessary journal entries related to the stock optionplan for the years 2016 through 2020. (Credit accounttitles are automatically indented when amount is entered. Do notindent manually. If no entry is required, select “No Entry” for theaccount titles and enter 0 for the amounts.)
Answer:
| Answer | |||
| Vaughn Corporation | |||
| Date | Account Titles and Explanation | Debit | Credit |
| 01-01-2016 | No entry require for granting of option | 0 | 0 |
| 31-12-2016 | Compensation expense (403,000/2) | $2,01,500 | |
| Paid-in-capital – Stock Options | $2,01,500 | ||
| (To record recognition of Compensation expense for2016) | |||
| 31-12-2017 | Compensation expense | $2,01,500 | |
| Paid-in-capital – Stock Options | $2,01,500 | ||
| (To record recognition of Compensation expense for2017) | |||
| 01-05-2018 | Cash (8,240 * $21) | $1,73,040 | |
| Paid-in-capital – Stock Options (($403,000*(8240/10300) | $3,22,400 | ||
| Common stock (8,240 * $5) | $ 41,200 | ||
| Paid-in-capital in Excess of par | $4,54,240 | ||
| (To record exercise of stock option) | |||
| 01-01-2020 | Paid-in-capital – Stock Options | $ 80,600 | |
| Paid-in-capital – expired stock | $ 80,600 | ||
| (To record Paid-in-capital from expiredstock) | |||
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