Recording Stock Options: Compensation Expense, Exercise

On January 1 of Year 1, Holiday Inc. offered a stock option incentive plan to a top executive. The plan provided the executive 300 stock options for Holiday Inc. $1 par value, common stock at an option price of $15 per share through the expiration date of January 1 of Year 7. The fair value of the options based upon an option-pricing model on January 1 of Year 1, is $9,000. The market price at year-end of Holiday Inc. stock is $15 per share on January 1 of Year 1, and $18 on December 31 of Year 1. The requisite service period is 3 years. The options were not exercised due to the stock price remaining below $15 per share after the vesting period.

Record the entry on January 1 of Year 7 for the expiration of the stock options.

Note: If a line in a journal entry isn't required for the transaction, select "N/Adebit" and "N/Acredit" as the account names and leave the Dr. and Cr. answers blank (zero).