What is journal entry for cashless exercise?

A cashless exercise occurs when an employee exercises stock options without paying cash upfront, often using the value of the underlying shares to cover the exercise price. The journal entry typically includes a debit to the stock option expense account (for the fair value of the options exercised), a credit to the common stock account (for the par value of the shares issued), and a credit to additional paid-in capital for the excess over par value. This reflects the issuance of new shares while recognizing the cost associated with the stock options.