McQueen, Inc. grants 200,000 nonqualified stock options to Robert Chalmers, the CEO, on January 1, 2018. The par value of McQueen's common stock is $1. The exercise price on the options is $35 per share, and the options are exercisable in two years.The stock price on January 1, 2018 is $31 per share. This is a fixed option plan. Using the Black-Scholes option pricing model, the value of each option is estimated to be $15.50 at the date of grant. Stock prices are $45, $65, and $50 at December 31, 2018, 2019, and 2020, respectively. Robert exercises his options on April 14, 2021, when the stock price is $57 per share.Required:
Using current GAAP, how much expense will McQueen, Inc. recognize for the year ended December 31, 2019 related to the options?Prepare the journal entries needed on the date of exercise.
What will be an ideal response?
1.
($15.50 × 200,000) ÷ 2 years = $1,550,000
2.
| Cash (200,000 × $35) | 7,000,000 | ||||
| Additional paid-in capital - options | 3,100,000 | * | |||
| Common stock - par | 200,000 | ||||
| Additional paid-in capital | 9,900,000 | ||||
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