Bauil Corporation, a new environmental control company, initiated a performance-based stock option plan for its management on January 1, 2007. The plan provided for the granting of a variable number of stock options to management personnel who worked for the entire 4-year period ending December 31, 2010, depending on the net income earned by the company in 2010. No options were granted for the first $50,000 of net income.

Thereafter, the following options were available based on the level of net income in 2010.

$50,000–$99,999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 stock options

$100,000–$124,999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 stock options

$125,000–$149,999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 stock options

$150,000 or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 stock options

The exercise price for the $5 par common stock was $25 per share. The fair value of the options on the grant date was $7.

Assume the market price for the Bauil stock and Bauil's forecasted 2010 net income were as follows at each of the following dates:

Instructions:
Prepare journal entries related to the stock options of Bauil for the period 2007–2010 assuming that all available options are exercised on December 31,2010.

Transcribed Image Text:

Stock Price Forecasted 2010 Income $27 30 29 35 36 $110,000 130,000 160,000 140,000 130,000 (actual) December 31, 2007 December 31, 2008 December 31, 2009 December 31, 2010