Question & Answer: Exercise 138 Prepare the necessary entries from 1/1/17-2/1/19 for the following events using…..

Exercise 138 Prepare the necessary entries from 1/1/17-2/1/19 for the following events using the fair value method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts.)

1. On 1/1/17, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 17,000 shares of common stock at $45 per share. The par value is $10 per share.

2. On 2/1/17, options were granted to each of five executives to purchase 17,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/19. It is assumed that the options were for services performed equally in 2017 and 2018. The Black-Scholes option pricing model determines total compensation expense to be $1,810,000.

3. At 2/1/19, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.