5. On December 1, 2018, Folks Wagon Company adopted astock-option plan that granted options
to key executives to purchase 50,000 shares of the company’s $10par value common stock. The
options were granted on January 1, 2019, and were exercisable 3years after the date of grant if the
grantee was still an employee of the company. The optionsexpired 5 years from the date of grant.
The option price was set at $35, and the fair valueoption-pricing model determines the total
compensation expense to be $450,000.
All of the options were exercised during the year 2022: 20,000on February 23 when the market
price was $46, and 30,000 on August 8 when the market price was$85 a share.
a. Prepare the journal entries relating to the stock option planfor the years 2019, 2020, and 2021.
Assume that the employee performs services equally in 2019,2020, and 2021.
b. Prepare the journal entries that record the two events ofexercising the options in 2022.
