On November 1, 2020, Stellar Company adopted a stock-option plan that granted options to key executives to purchase 31,800 shares of the company’s $9 par value common stock. The options were granted on January 2, 2021, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model determines the total compensation expense to be $477,000. All of the options were exercised during the year 2023: 21,200 on January 3 when the market price was $68, and 10,600 on May 1 when the market price was $77 a share. Prepare journal entries relating to the stock option plan for the years 2021, 2022, and 2023. Assume that the employee performs services equally in 2022 and 202

2021 No entry

The total compensation cost is the amount of $477,000

2021

Dr Compensation Expense 238,500

Cr Paid-in Capital- Stock Options 238,500

2022

Dr Compensation Expense 238,500

Cr Paid-in Capital- Stock Options238,500

1/3/2023

Dr Cash 848,000

Dr Paid-in capital - Stock Options 318,000

Cr Common Stock 190,800

Cr Paid-in Capital in Excess of par 975,200

5/1/2023

Dr Cash 424,000

Dr Paid-in Capital - Stock Options 159,000

Cr Common Stock 95,400

Cr Paid-in Capital in Excess of Par 487,600

Explanation:

Preparation of the journal entries relating to the stock option plan for the years 2021, 2022, and 2023.

2021 No entry

The total compensation cost is the amount of $477,000

2021

Dr Compensation Expense 238,500

Cr Paid-in Capital- Stock Options 238,500

(1/2 * $477,000)]

(Being To record compensation expense for 2021)

2022

Dr Compensation Expense 238,500

Cr Paid-in Capital- Stock Options238,500

(1/2 * $477,000)

(Being To record compensation expense for 2022)

1/3/2023

Dr Cash 848,000

(21,200 * $40)

Dr Paid-in capital - Stock Options 318,000

($477,000 *(21,200/31,800))

Cr Common Stock 190,800

(21,200 * $9)

Cr Paid-in Capital in Excess of par 975,200

[848,000+318,000-(190,800)]

(Being To record issuance of 21,200 shares of $9 par value stock upon exercise of option price set at $40)

5/1/2023

Dr Cash 424,000

(10,600 *$40)

Dr Paid-in Capital - Stock Options 159,000

($477,000 * (10,600/31,800))

Cr Common Stock 95,400

(10,600*$9)

Cr Paid-in Capital in Excess of Par 487,600

[424,000+159,000-(95,400)]

(Being To record issuance of 10,600 shares of $9 par value stock upon exercise of option price set at $40)

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