On January 1, 2013, Lyndon Systems granted its top executives options to purchase 6,000 shares of common

Question:

On January 1, 2013, Lyndon Systems granted its top executives options to purchase 6,000 shares of (par $2) at an exercise price of $20 per share, the market price on January 1. The options have an estimated fair value of $8 per option and may be exercised over a 4-year span, starting 3 years hence. Suppose all options are exercised 3 years hence, when the market value of the stock is $45 per share.
1. Prepare the journal entries Lyndon would record to account for compensation expense on December 31, 2013, December 31, 2014, and December 31, 2015.
2. Prepare the appropriate journal entry for the exercise of the options on the books of Lyndon Systems.
3. Discuss the economic benefits to managers and the benefits to the company from these options.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...