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:

1. Record the journal entry to recognize the issuance of stock options to employees.
2. Post the journal entry to the Stock Options Outstanding account in the ledger.
3. Calculate the fair value of the stock options using an appropriate valuation method.
4. Record the journal entry to recognize stock-based compensation expense.
5. Post the journal entry to the Stock-Based Compensation Expense account in the ledger.
6. Analyze the impact of stock-based compensation on the company's income statement and equity.
7. Discuss the accounting treatment of stock options and its implications for financial reporting.
8. Evaluate the effect of stock option plans on employee motivation and retention.
9. Record the journal entry to recognize the exercise of stock options by employees.
10. Post the journal entry to the Common Stock and Additional Paid-in Capital accounts in the ledger.