On November 1, 2007, Columbo Company adopted a stock option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2008, 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 $450,000.
All of the options were exercised during the year 2010: 20,000 on January 3 when the market price was $67, and 10,000 on May 1 when the market price was $77 a share.
Instructions
Prepare journal entries relating to the stock option plan for the years 2008, 2009, and 2010 under the fair value method. Assume that the employees perform services equally in 2008 and 2009.