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Testbank Exercise 138 Prepare the necessary entries from 1/1/20-2/1/22 for the following events using the fair value method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) 1. On 1/1/20, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 25,000 shares of common stock at $35 per share. The par value is $10 per share. 2. On 2/1/20, options were granted to each of five executives to purchase 25,000 shares. The options were non- transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/22. It is assumed that the options were for services performed equally in 2020 and 2021. The Black-Scholes option pricing model determines total compensation expense to be $1,800,000. 3. At 2/1/22, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited. Debit Credit 0 0 0 0 No. Date Account Titles and Explanation 1. 1/1/20 No Entry No Entry 2. 2/1/20 No Entry No Entry 12/31/20 Compensation Expense Paid-in Capital-Stock of 12/31/21 Compensation Expense Paid-in Capital-Stock Of 3. 2/1/22 Cash 900,000 900,000 900,000 900,000 4,500,000 1,440,000 1,000,000 Paid-in Capital-Stock Optio Common Stock Paid-in Capital in Excess of (To record exercise of options) Paid-in Capital-Expired Sto Paid-in Capital-Expired Sto (To record lapse of options) 2/1/22