7. On January 2, 2019, F Corp adopted a stock option plan for Mr. Top, its...

 

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7. On January 2, 2019, F Corp adopted a stock option plan for Mr. Top, its chief executive officer, granting him options to purchase 100,000 shares of F's $10par value common stock. The options are non-transferable and Mr. Top must remain as an employee of the company for 2019 and 2020 in order to exercise the options, which become exercisable on 1/1/21 and expire on 2/1/23. The options allow Mr. Top to purchase the F shares, which are currently trading at $30 a share, at $30 per share. The Black-Scholes option pricing model determines the total compensation expense to be $2,000,000. INSTRUCTIONS: (15 points) a. Prepare the journal entry, if any, for the issuance of the options on 1/2/19. b. Prepare the 12/31/19 journal entry to record the compensation expense for 2019. c. Assume that Mr. Top exercises 60,000 of his options (and purchases 60,000 shares of F stock) on 12/15/21 when the stock is trading at $60 per share. Prepare the journal entry for the exercise of the 60,000 options. d. Assume that Mr. Top lets the remaining options expire on 2/1/23 (because the trading price has dropped below $30 a share). Prepare the journal entry, if any, for the expiration of the options. 7. On January 2, 2019, F Corp adopted a stock option plan for Mr. Top, its chief executive officer, granting him options to purchase 100,000 shares of F's $10par value common stock. The options are non-transferable and Mr. Top must remain as an employee of the company for 2019 and 2020 in order to exercise the options, which become exercisable on 1/1/21 and expire on 2/1/23. The options allow Mr. Top to purchase the F shares, which are currently trading at $30 a share, at $30 per share. The Black-Scholes option pricing model determines the total compensation expense to be $2,000,000. INSTRUCTIONS: (15 points) a. Prepare the journal entry, if any, for the issuance of the options on 1/2/19. b. Prepare the 12/31/19 journal entry to record the compensation expense for 2019. c. Assume that Mr. Top exercises 60,000 of his options (and purchases 60,000 shares of F stock) on 12/15/21 when the stock is trading at $60 per share. Prepare the journal entry for the exercise of the 60,000 options. d. Assume that Mr. Top lets the remaining options expire on 2/1/23 (because the trading price has dropped below $30 a share). Prepare the journal entry, if any, for the expiration of the options.