Example 10

On January 1, 2022, Clayton Corporation granted 64,000 stock options to managers, each permitting holders to purchase one share of the companys $1 par common shares within the next five years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $12 per share. The fair value of the options, estimated by an appropriate option pricing model is $5 per option.

Required:

Prepare the appropriate journal entry for each of the following transactions.

Calculate total compensation cost on January 1, 2022.

Prepare the journal entry to record compensation expense for the year ended December 31, 2022.

Prepare the journal entry to record exercise of 16,000 options on December 31, 2024.