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    P16-3 Stock - Option Plan Berg Company journal entries

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    (Stock - Option Plan) Berg company adopted a stock -option plan on November 30, 2011, that provided that 70,000 shares of $5 par value be designated as a available for the granting of options to officers of the corporation at a price of $9 a share. The market price was $12 a share on November 30,2012.   

    On January 2,2012, options to purchase 28,000 shares were granted to president Tom Winter - 15,000 for service rendered in 2012 and 13,000 for services to be rendered in 2013. Also on that date ,options to purchase 14,000 shares were granted to vice president Michelle Bennett - 7,000 for service to be rendered in 2012 and 7,000 for services to be rendered in 2013. The market price of the stock was $14 a share on January 2,2012. the options were exercisable for a period of one year following the year in which the service were rendered. The fair value of the options on the grant date was $4 per option.   

    In 2013, neither the president nor the vice president exercised their options because the market price or the stock was below the exercise price. The market price of the stock was $8 a share on December 31,2013 when the options for 2012 services lapsed.   On December 31,2014, both president Winter and vice president Bennett exercised their options for 13,000 and 7,000 shares ,respectively, when the market price was $16 a share.

    Prepare the necessary journal entries in 2011 when the stock -option plan was adopted , in 2012 when options were granted , in 2013 when options lapsed, and in 2014 when options were exercised.

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    Solution Summary

    The computations are given and entries recorded for the three years.