Schmidt Electronics Offered an Incentive Stock Plan to Its Employees

Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 120,000 options were granted for 120,000 $1 par common shares. The exercise price equals the $8 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $4 based upon an option pricing model. What is the journal entry to record the exercise of 85% of the options during Year 4 when the market price of the stock was $10?

A) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 816,000 & \\\hline \text { APIC - Stock Options } & 408,000 & \\\hline \text { Common Stock } & & 102,000 \\\hline \text { APIC in Excess of Par - Common } & & 1,122,000 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 816,000 & \\\hline \text { APIC-Stock Options } & 408,000 & \\\hline \text { Common Stock } & & 120,000 \\\hline \text { APIC in Excess of Par - Common } & & 1,104,000 \\\hline\end{array}$$
C) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 408,000 & \\\hline \text { APIC-Stock Options } & 102,000 & \\\hline \text { Common Stock } & & 102,000 \\\hline \text { APIC in Excess of Par - Common } & & 408,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Cash } & 120,000 & \\\hline \text { APIC-Stock Options } & 102,000 & \\\hline \text { Common Stock } & & 120,000 \\\hline \text { APIC in Excess of Par - Common } & & 102,000 \\\hline\end{array}$$

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