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On January 1, 2019, Pharoah Corporation granted 9,600 options to key executives. Each option allows the executive to purchase one share of Pharoah’s $5 par value common stock at a price of $20 per share. The options were exercisable within a 2-year period beginning January 1, 2021, if the grantee is still employed by the company at the time of the exercise. On the grant date, Pharoah’s stock was trading at $24 per share, and a fair value option-pricing model determines total compensation to be $399,000. On May 1, 2021, 7,680 options were exercised when the market price of Pharoah’s stock was $29 per share. The remaining options lapsed in 2023 because executives decided not to exercise their options. Prepare the necessary journal entries related to the stock option plan for the years 2019 through 2023

Respuesta :

Answer:

Journal Entry

Explanation:

The Journal Entry is shown below:-

1. No Entry

2. Compensation expense Dr,               $199,500  

($399,000 × 1 ÷ 2)

            To paid in capital - stock option            $199,500

(Being compensation expenses is recorded)

3. Compensation expense Dr,                $199,500

             To paid in capital - stock option              $199,500

(Being compensation expenses is recorded)

3. Cash Dr,                                                $153,600

(7,680 × $20)

Paid in capital - stock option Dr,             $319,200

($399,000 × 7,680 ÷ 9,600)

              To common stock                                    $38,400

                (7,680 × $5)

               To Paid in capital in excess of par         $434,400

(Being exercise on stock option is recorded)

4. Paid in capital - stock option Dr,            $79,800

($399,000 - $319,200)

                To paid in capital from expired stock      $79,800

(Being paid in capital stock option is recorded)

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