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Question 14: A company grants stock options to employees, entitling them to purchase 5,000 shares of common stock at an exercise price of $20 per
Question 14: A company grants stock options to employees, entitling them to purchase 5,000 shares of common stock at an exercise price of $20 per share. Provide a comprehensive explanation of the journal entries and subsequent adjustments to record the stock option issuance, compensation expense, and exercise.
Requirements:
- Record the journal entry to recognize the issuance of stock options to employees.
- Post the journal entry to the Stock Options Outstanding account in the ledger.
- Calculate the fair value of the stock options using an appropriate valuation method.
- Record the journal entry to recognize stock-based compensation expense.
- Post the journal entry to the Stock-Based Compensation Expense account in the ledger.
- Analyze the impact of stock-based compensation on the company's income statement and equity.
- Discuss the accounting treatment of stock options and its implications for financial reporting.
- Evaluate the effect of stock option plans on employee motivation and retention.
- Record the journal entry to recognize the exercise of stock options by employees.
- Post the journal entry to the Common Stock and Additional Paid-in Capital accounts in the ledger.
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