Question: Problem Two: On January 1, 2016 Howards Tractors Inc. granted 100,000 stock options to senior executives. The options permit the executives to purchase company shares

Problem Two:

On January 1, 2016 Howards Tractors Inc. granted 100,000 stock options to senior executives. The options permit the executives to purchase company shares for $6, (current FMV is $5), after January 1, 2018, the options expire on December 31, 2019.

A pricing model determined the value of the options to be $3.25 each.

Prepare Journal entries for the following:

December 31, 2016 Compensation Expense, all holders of options are still employed by the company.

December 31, 2017 Compensation Expense, all holders of options are still employed by the company.

March 12, 2018 Holders of 40,000 options exercise their options.

July 17, 2019 Holders of 15,000 options exercise their options.

December 31, 2019 The balance of the options expire.

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