On January 1,2013,Delgado Company establishes a stock option plan that grants 100 qualified managers options for a computed number of shares of $20 par-value common stock at a computed option price per share.The exercise price is $40,the market price of the company's common stock on the grant date.Computation of the number of options awarded will be made three years after the option is granted and is based on the increase in net income over the three-year period using the following formula:
Number of options
= 1,000 * (1 + growth rate of earnings per share from 2012 to 2015)= 1,000 * (1 + EPS in 2015/EPS in 2012)The options are nontransferable and must be exercised not earlier than three years,nor later than five years,from the grant date.Employment with the company is required through the exercise date.For simplicity,it is assumed that all the vested options are exercised near the end of 2017,when the price of the stock was $70.
Management estimates that earnings growth over the three-year period will be approximately 25 percent.Forfeitures are estimated to be approximately 2 percent per year from the grant date to the vesting date.Use of an option pricing model yields a fair value for the options of $10 per option.
At December 31,2013,earnings per share have grown 10 percent over the 2012 EPS.Management,however,continues to believe that the 25 percent growth amount over the three-year period is accurate.Two of the grantees have left the firm.The stock price has increased to $44 per share.
At December 31,2014,no changes in estimates are made,even though earnings growth for the two-year period is only 15 percent.Market price per share has increased to $51 per share.An additional three grantees have left the company.
At December 31,2015,the three-year growth in earnings is only 20 percent.Only 90 of the grantees are still with the company,and these individuals vest with their options.The stock price is now $48 per share.
All vested options are exercised on December 28,2017,when the market price of the company's stock is $70 per share.
Required:
Prepare all journal entries necessary to account for this stock compensation plan.

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The Answer of On January 1,2013,Delgado Company establishes a stock option plan that grants 100 qualified managers options for a computed number of shares of $20 par-value common stock at a computed option price per share.The exercise price is $40,the market price of the company's common stock on the grant date.Computation of the number of options awarded will be made three years after the option is granted and is based on the increase in net income over the three-year period using the following formula:
Number of options
= 1,000 * (1 + growth rate of earnings per share from 2012 to 2015)= 1,000 * (1 + EPS in 2015/EPS in 2012)The options are nontransferable and must be exercised not earlier than three years,nor later than five years,from the grant date.Employment with the company is required through the exercise date.For simplicity,it is assumed that all the vested options are exercised near the end of 2017,when the price of the stock was $70.
Management estimates that earnings growth over the three-year period will be approximately 25 percent.Forfeitures are estimated to be approximately 2 percent per year from the grant date to the vesting date.Use of an option pricing model yields a fair value for the options of $10 per option.
At December 31,2013,earnings per share have grown 10 percent over the 2012 EPS.Management,however,continues to believe that the 25 percent growth amount over the three-year period is accurate.Two of the grantees have left the firm.The stock price has increased to $44 per share.
At December 31,2014,no changes in estimates are made,even though earnings growth for the two-year period is only 15 percent.Market price per share has increased to $51 per share.An additional three grantees have left the company.
At December 31,2015,the three-year growth in earnings is only 20 percent.Only 90 of the grantees are still with the company,and these individuals vest with their options.The stock price is now $48 per share.
All vested options are exercised on December 28,2017,when the market price of the company's stock is $70 per share.
Required:
Prepare all journal entries necessary to account for this stock compensation plan.

On January 1,2013,Delgado Company Establishes a Stock Option Plan That