Recording Stock Options: Issuance and Exercise

Rex Corporation is authorized to issue 300,000 shares of common stock, $1 par, of which 140,000 shares had been issued. The corporation initiated a stock bonus plan during Year 1 for designated managers. Under the plan, options vest with the grantee if still employed by the company two years from the date of grant. The rights are nontransferable and expire immediately after December 31 of Year 5. The exercise price is $20 per share. Assume that manager Jewel receives stock options on January 1 of Year 1 to purchase 1,000 shares of Rex common stock. The market price of Rex common stock on the date of grant was $24 per share. Using an option-pricing model, the fair value of the options granted to Jewel is computed to be $12 per option.

Required

a. Compute the total amount of compensation cost for the grant made to Jewel.

b. What entry should be made on the date of the grant?

c. What entry should be made on December 31 of Year 1?

d. Provide the entry to record the exercise of the options held by Jewel on December 31 of Year 5, when the stock of Rex Corporation was trading at $35 per share.

Note: If a journal entry isn't required on any of the dates shown, select "N/Adebit" and "N/Acredit" as the account names and leave the Dr. and Cr. answers blank (zero).

a. Total amount of compensation cost \$