Question #4

On January 1, 2018, Glasgow Inc. granted stock options for 50,000 of its no par value common shares to the two key employees, at an option price of $30. On that date, the market price of the common shares was $27. The Black-Scholes option pricing model determined total compensation expense to be $420,000. The options are exercisable beginning January 1, 2020, provided the key employees are still employed by Glasgow at the time the options are exercised. The options expire on January 1, 2022. On January 2, 2020, when the market price of the shares was $35 per share, 30,000 options were exercised. On October 2, 2021, when the market price of the shares was $36 per share, another 50,000 options were exercised. The remaining 20,000 options expired on January 1, 2022.

Instructions

Calculate the intrinsic value and the time value of the stock option.

What was the amount of compensation expense Glasgow should have recorded for calendar 2022?

Prepare journal entries relating to the stock option plan for the years 2018 through 2022. Assume that the employees perform services equally. Glasgow fiscal year end is December 31.