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On January 2, 20X1, Utta Corp. (a calendar-year company) grants 10,000 stock options with a 3-year vesting period to employees. On the grant date, the market price of the $1 par value stock is equal to the exercise price of $20 per share. On the date of grant, the estimated value of the options is $6 per option. During 20X4, when the market value of the stock is $30 per share, 9,000 stock options were exercised. Utta Corp. should recognize this event by debiting

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abiolataiwo2015

Answer:

Paid-in capital-stock options for $54,000

Cash for $180,000

Explanation:

Based on the information given the Corporation should recognize this event by debiting Paid-in capital-stock options for the amount of $54,000 and debiting Cash for the amount of $180,000

Paid-in capital-stock options for $54,000 is calculated as :

First step

($20 per share-$6 per option) *9,000 stock options

=$14*9,000 stock options

=$126,000

Second step

($20 per share*9,000 stock options)

=$180,000

Hence, Paid-in capital-stock options will be :.

$180,000-$126,000

Paid-in capital-stock options=$54,000

Cash for $180,000 is calculated as:

($20 per share*9,000 stock options)

=$180,000

Therefore Utta Corp. should recognize this event by debiting:

Paid-in capital-stock options for $54,000

Cash for $180,000

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