Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2018, 20 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date-$10 per share. Options vest on January 1, 2022. They cannot be exercised before that date and will expire on December 31, 2024. The fair value of the 20 million options, estimated by an appropriate option pricing model, is $40 per option. Ignore income tax.
- On March 1, 2022, when the market price of Wilson's stock was $14 per share, 3 million of the options were exercised. The journal entry to record this would include:
A) A debit to paid-in capital-stock options for $42 million.
B) A credit to paid-in capital-excess of par for $255 million.
C) A credit to common stock for $75 million.
D) All of these answer choices are correct.

Question

Quizplus · Accepted Answer

The computation is as follows:
Cash: 3 million options 5 × shares/option × $10/share = $150 million
Paid-in capital-stock options: 3 million options × $40/option) = $120 million
Common stock: 15 million shares × $1 par/share = $15 million
Paid-in capital-excess of par (to balance) = $255 million