Lloydminster Ltd.issued 1,000 stock options to its president when their shares were trading in the market at $20.The exercise price was $22, and the market price when they were exercised was $25.The estimated market value of the options at the date of issue was $1.25 each.Which of the following is the correct journal entry to record the issue of the options? $\begin{array}{lc}
\text { A) Dr. Cash } & 22,000 \
\text { Cr. Common shares } &&{22,000} \
\text { B) Dr. Cash } & 22,000 \
\text { Dr. Compensation expense } & 3,000 \
\text { Cr. Common shares } && {25,000}\
\text { C) Dr. Compensation expense } & 1,250 & \
\text { Cr. Common shares } & & 1,250 \
\text { D) Dr. Compensation expense } & 1,250 & \
\quad \text { Cr. Contributed surplus } & & 1,250
\end{array}$

Question

Quizplus · Accepted Answer

The correct journal entry to record the issue of stock options is to recognize the compensation expense (estimated market value of the options) and credit contributed surplus, as the options have not yet been exercised and no cash or common shares are involved at the time of issue.

Lloydminster Ltd A)Option a B)Option B C)Option C D)Option D

Lloydminster Ltd A)Option a
B)Option B
C)Option C
D)Option D