Correct me if I am wrong. The question says "stockholders equity will report APIC and......."

Thanks.

I have one more doubt from wiley:

Shafer Corporation(non public) established a stock option plan on Jan1,2007. The plan allows its employees to acquire 20,000 shares of its $5 par value at $70 per share, when the MP is $75. The options may not be exercised until five years from the grant date. The fair value of option is $6.4. What is the amount of deferred compensation expense recorded in year one?

Correct answer is $128,000(6.4*20,000)-I can't understand why this has not been spread over 5 years. Please give your comments.

My mistake... Sorry, I am reading too much :(

Alright, now I understand it correctly ! You are correct Sanjana that stock receivable account is a contra-equity account. So, the only impact on SE should have been the cash received for 20% of the subscriptions.

However, we don't have that option listed in the question. a.) and b.) are out of scope as they talk about the common stock issued which is not possible as only 20% of the subscriptions have been received and it's not specified that 20% is against full subscription value.Thus, we can assume partial payment.

Option c.) talks about 80% of the common stock subscribed which is again not possible as only 20% of the subscriptions have been received.

Thus, per my understanding, option d.) is the best available option ignoring the impact of contra-equity!