Your Ask Joey ™ Answer

What is the journal entry to record stock options being exercised?

The visual below illustrates the two key activities that must be performed. First, you have to figure out how to record the stock option expense during the vesting period. Next, you need to figure out what entry is needed when the stock options are exercised.

For example, on January 1, Year 1, Thayer Robotics granted stock options to the rockstar female CEO to purchase of 25,000 shares of the company’s $20 par value common stock at $42 per share. All stock options were exercised on December 28, Year 1. Using an acceptable option pricing model, Thayer Robotics calculated total compensation cost of $300,000. The quoted market prices of Thayer’s $15 par value common stock were $43 on January 1, Year 1 and $49 on December 28, Year 1.

The journal entry to record the options when they are exercised would be:

If you are studying for the CPA exam, then sign up for a free trial to have full access to the Universal CPA platform for 7 days here. Universal CPA is the only course that has visual learning and bite-sized video explanations for every single MCQ and simulation.

To learn more about the Universal CPA course and see a demo of the course, visit this link.

Back To All Questions

You might also be interested in...

  • How is total stock compensation expense calculated?

    Total stock compensation expense is calculated by taking the number of stock options granted and multiplying by the fair market value on the grant date. Once you have the total stock option expense, divide by the vesting or service period (# of years), and that determines how much stock compensation expense is recorded in each...

  • What are employee stock options?

    Stock options are typically granted to executives and employees to align their efforts with the overall goals of the organization. When a company issues stock options to employees, employees will hold the options over a service or vesting period, and then exercise them at a future date. Each stock option will have an exercise price,...

  • How do employee stock options impact shares outstanding for a company?

    When stock options are granted to an employee, the total number of shares outstanding increases. Then, when those shares are exercised, the total number of shares decreases.