The following events occurred at Charlotte Company surrounding stock options. Charlotte uses the fair value method of accounting for stock options. On 1/1/21 options were granted to each of four executives to purchase 5,000 shares (a total of 20,000 shares) of the company’s $2 par value common stock at a price of $25. The options were non-transferable and the executive had to remain an employee of the company through 12-31-22 to exercise the options. The options expire on 2/1/23. The Black-Scholes option pricing model determines the fair value of the options to be $1,350,000.On 4/5/22, one of the four executives resigned from the company.On 2/1/23, the remaining three executives exercised their options. Required: Prepare any necessary entries for 1/1/21, 12/31/21, 4/5/22, 12/31/22 and 2/1/23. If no entry is necessary, indicate as such.

Stock Options: Stock options can be defined as the option given to the employees of the company to…

Answered: The following events occurred at…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

Section: Chapter Questions

Problem 10P

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The following events occurred at Charlotte Company surrounding stock options. Charlotte uses the fair value method of accounting for stock options.

On 1/1/21 options were granted to each of four executives to purchase 5,000 shares (a total of 20,000 shares) of the company’s $2 par value common stock at a price of $25. The options were non-transferable and the executive had to remain an employee of the company through 12-31-22 to exercise the options. The options expire on 2/1/23. The Black-Scholes option pricing model determines the fair value of the options to be $1,350,000.
On 4/5/22, one of the four executives resigned from the company.
On 2/1/23, the remaining three executives exercised their options.

Required:

Prepare any necessary entries for 1/1/21, 12/31/21, 4/5/22, 12/31/22 and 2/1/23. If no entry is necessary, indicate as such.

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