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Recording Stock Options: Issuance and Exercise In October of Year 1, Meno Corp. announced a stock option incentive plan for its top executives. The

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Recording Stock Options: Issuance and Exercise In October of Year 1, Meno Corp. announced a stock option incentive plan for its top executives. The plan provides each executive 5,400 stock options for Meno's common stock, $1 par, at an exercise price of $36 per share reduced by the percentage increase in EPS from December 31 of Year 1, to December 31 of Year 3. The rights are nontransferable and are exercisable three years after the grant date and prior to five years from the grant date. Continuing employment is required through exercise date, and the requisite service period ends on the first possible exercise date. On January 1 of Year 2, Martha Smith was granted 5,400 options when the market price was $30 per share. Using an option-pricing model, the fair value of the options granted to Smith was valued at $9 per option. On December 31 of Year 2, Meno's management believed that Smith would exercise her options at the first exercise date. By December 31 of Year 3, Meno's EPS had increased by 20%. Smith exercised her options on December 31 of Year 4 when the market price of the stock was $60 per share. a. Compute the total amount of compensation cost for the grant made to Smith on January 1 of Year 2. b. What entry should be made on the date of the grant? c. What entry should be made on December 31 of Year 2? d. Provide the entry to record the exercise of the options held by Smith on December 31 of Year 4. Note: If a journal entry isn't required on any of the dates shown, select "N/Adebit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero). a. Total amount of compensation cost $ 48,600 Date b. Jan. 1, Year 2 N/A-debit Account Name N/A-credit To record compensation cost. c. Dec. 31, Year 2 Compensation Expense Paid-in Capital-Stock Options To record adjusting entry. d. Dec. 31, Year 4 Cash Paid-in Capital-Stock Options Common Stock Paid-in Capital in Excess of Par-Common Stock To record exercise of options. > > > > > > > > Dr. 0 0 Cr. 0 0 16,200 0 0 16,200 48,600 0 0 0 0 5,400

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