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okay in this problem this is about recording stock options so the problem is the Board of Directors ABC Corp adopted a fixed stock option plan to supplement the salaries of certain executives of the company options to buy the stock we're granted as follows so you have the date here when the option was granted the employee the number of shares the option is good for the exercise price the price of shares at date of grant and the option of the value or the the value of the option at the date of the grant it says options are non-transferrable and can be exercised beginning three years after the date of grant provided the executive is still employed by the company stock options where exercised as follows so on this problem is just assumes that all the employees still work there when they're three years we're up in that they all option or they all exercise their options the full option so alfred exercised his option to buy 80,000 shares on december 31st 2011 the price of the shares of the date of exercise were $48 that's irrelevant that doesn't what matters is the exercise price and so William and Frances same thing when they're three years were up so now we're going to provide all the entries that would be made on the books of count whoops a B ABC Corp relative to the stock option plan for the period 2008 to 2013 inclusive now on December 31st 2008 if we go back to Alfred here he had 80,000 shares at an option value of $9 so we debit compensation compensation expense for $240,000 if we look at the note here for Alfred's compensation nine dollars times eighty thousand shares of seven hundred and twenty dollars but you divide it by three because the option can't be exercised until three years after the date so you do so it's spread out over three years so divided by three it's two hundred forty thousand dollars that you record at the end of 2008 that's what this number is right here and then you credit paid in capital from stock options for the same amount on December 31st 2009 you would you have a debit of compensation to debit to compensation expense of three hundred ninety thousand dollars and the reason that is you have the same two hundred forty thousand dollars for for a year or two from Alfred plus you have Williams compensation of $10 per option times forty five thousand shares divided by three again so for this year for Alfred look for the first year William you have 150 thousand and we record the two hundred forty thousand plus one hundred fifty thousand that's three hundred ninety thousand so you can probably see how this goes nd also credit paid in capital from stock options two three four three hundred ninety thousand now on December 31st 2010 you have two hundred forty thousand for Alfred again you have a hundred fifty thousand for William and then for Francis he comes in this year at $11 per option times twenty five thousand shares divided by three that's ninety 1667 its rounded to the nearest dollar you add those together and you get 480 1667 so again you debit that to compensation expense and you credit paid in capital from stock options now in December 31st 2011 no one's still no one was able to our sorry Alfred can exercise this we'll go to that in a minute for compensation expense this year you only have the compensation expense from William and Frances Alfred's is complete so you have one hundred fifty thousand from William and ninety one thousand six hundred and sixty-seven from Frances and that gives you two hundred forty-one thousand six sixty seven and that's what you debit and credit right here now on December 31st 2011 Alfred can exercise his option and it goes like this you debit cash for two hundred forty thousand four hundred thousand paid in capital from stock options seven hundred twenty thousand you credit common stock at $1 par for 80 thousand and paid in capital in excess of par for three hundred for three million and forty thousand now the reasons you do this for cash Alfred exercised his option and purchased 80 thousand dollars sorry 80 thousand shares at $30 per share which is what it's option was that gives you two million four hundred thousand right here and paid in capital from stock options that's what we were crediting the whole time because that represented his investment so this is the paid in capital that represents the investment of the work by Alfred it's the total value of his options when they were granted so if you remember his the total value of Alfred's options was seven hundred twenty thousand then you have to credit common stock for the $1 par so one dollar per share gives you 80 thousand and the balance is the paid in capital in excess of par so this is you know these obviously equal this up here your debits on December 31st 2012 you've got compensation expense of just Francis so it's his one-year it's eleven times twenty five thousand divided by 3 that's the ninety-one 666 up here we had 667 and we rounded down on the last one rounded down on the last one whoops right here now to record William exercising his option he paid $45,000 45,000 shares at $38 per share that gives you 1 million seven hundred ten thousand and the balances is paid in capital which was what his options were worth it's four hundred fifty thousand it's the same thing common stock for one dollar per share forty five thousand and the balance of two hundred and eleven thousand five two million one hundred and fifteen thousand to record Frances exercising his option it's the same thing you've got cash of what he paid forty three dollars per share times twenty five thousand shares his paid in capital what his options were worth two hundred seventy five thousand you credit common stock for one dollar per share and the balance is paid in capital of excess in excess of par for 1 million three hundred twenty-five thousand