Question
On January 1, 2018, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the companys $10 par
On January 1, 2018, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the companys $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $350,000. On April 1, 2019, 2,000 options were terminated when the employees resigned from the company. The market price of the common stock was $35 per share on this date. On March 31, 2020, 12,000 options were exercised when the market price of the common stock was $40 per share.
I only need help with the March 31, 2020 transaction. the book says it's the following for march 31 2020:
it is 300,000(12,000 x 25) cash debit 300,000
paid in capital - stock options debit(350,000 x 12,000/20000) 210,000
Common stock credit(12,000 x 10) 120,000
Paid in capital excess of par credit 390,000
my question is why is cash 12,000 x $25? shouldn't it be 12,000 x $40 instead since it is given in the question that "
12,000 options were exercised when the market price of the common stock was $40 per share."
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