Reference no: EM131819776

Question - On June 30, 2010, Yang Corporation granted compensatory stock options for 20,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $64,000. The options are exercisable beginning January 1, 2012, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on June 30, 2013.

On January 4, 2012, when the market price of the stock was $36 per share, all options for the 20,000 shares were exercised. The service period is for two years beginning January 1, 2010. Solution: 12,000

Instructions:

1) Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2010?

2) Prepare journal entries relating to the stock option plan for years 2010, 2011, and 2012. Assume that the employee performance services equally in 2010 and 2011.