ISU Company adopted a stock option plan on November 30, 2007, that provided that 70,000 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $8 a share. The market value was $12 a share on November 30, 2007.
On January 2, 2008, options to purchase 28,000 shares were granted to president Don Pedro—15,000 for services to be rendered in 2008 and 13,000 for services to be rendered in 2009. Also on that date, options to purchase 14,000 shares were granted to vice president Beatrice Leonato—7,000 for services to be rendered in 2008 and 7,000 for services to be rendered in 2009. The market value of the stock was $14 a share on January 2, 2008.
The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was $3 per option.
In 2009 neither the president nor the vice president exercised their options because the market price of the stock was below the exercise price. The market value of the stock was $7 a share on December 31, 2009, when the options for 2008 services lapsed.
On December 31, 2010, both president Pedro and vice president Leonato exercised their options for 13,000 and 7,000 shares, respectively, when the market price was $16 a share.
Instructions
Prepare the necessary journal entries in 2007 when the stock option plan was adopted, in 2008 when options were granted, in 2009 when options lapsed, and in 2010 when options were exercised.