CloudWorks, Inc. has an employee stock option plan (ESOP henceforth). In 2031, the firms executive officers were granted 10,000 options with an exercise price of $40 and a vesting period of 3 years. The estimate of the fair value of the granted options is $6 per unit of options. The firms common stock has a par value of $1, and its current market price is $38 per share

Using the template below, provide the relevant accounting entries showing the effect of the option grant on the balance sheet at the end of 2031. Clearly indicate the dollar amounts and whether they are an increase or decrease, e.g., Cash: $6,000 (-), Noncash asset: $12,000 (+), APIC: $25,000 (+), RE: $15,000 (-), etc.

Answer:

FYE 2031, ESOP compensation.
Assets	Liabilities & Equity

Suppose that in 2035, one of the executives exercises 200 options when the market price of the stock is $55, higher than the exercise price $40. What will be the effect of the option exercise on the balance sheet? Using the template below, provide relevant accounting entries showing the dollar amounts and whether they are an increase or decrease, e.g., Cash: $6,000 (-), Noncash asset: $12,000 (+), APIC: $25,000 (+), RE: $15,000 (-), etc.

Answer:

FYE 2035, ESO exercised.
Assets	Liabilities & Equity