Asked by Maday Diarte on Jul 26, 2024
Verified
Refer to Exhibit 16-3.What entry, if any, was required on December 31, 2010?
A) no entry was necessary
B)
Compensation Expense 12,000\quad 12,00012,000
Common Stock Option Warrants 12,000\quad 12,00012,000
C)
Compensation Expense 6,000\quad 6,0006,000
Common Stock Option Warrants 6,000\quad 6,0006,000
D)
Compensation Expense 9,000 \quad 9,000 9,000
Deferred Compensation \quad \quad \quad 9,000
Fixed Compensatory Option Plan
A stock option plan that provides employees with the right to purchase company shares at a fixed price as part of their compensation package.
Service Period
The period of time an employee must work to earn benefits or rights under an employment contract or agreement.
Fair Value
The estimated market price of an asset or liability, reflecting current market conditions rather than historical cost.
- Understand the accounting procedures and the effects on financial statements of both stock splits and stock options, including compensatory and noncompensatory types.
Verified Answer
HB
Hannah BehailuAug 02, 2024
Final Answer :
B
Explanation :
Under the fixed compensatory option plan, compensation expense is recognized ratably over the service period. In this case, since the service period extends through December 31, 2011, half of the compensation expense ($12,000/2 = $6,000) needs to be recognized on December 31, 2010. Therefore, the journal entry required on December 31, 2010, is:
Compensation Expense 6,000
Common Stock Option Warrants 6,000
Compensation Expense 6,000
Common Stock Option Warrants 6,000
Learning Objectives
- Understand the accounting procedures and the effects on financial statements of both stock splits and stock options, including compensatory and noncompensatory types.