On January 1, 2016, sixty executives are offered a fixed compensatory stock option plan in which each of them will receive options to buy 6,000 shares of $10 par common stock at $40 a share. On the grant date, the fair value per option is $7.50. There is a three-year service period and an estimated annual employee turnover rate of 2%. Required: a. Compute the expected total compensation cost. b. Compute the compensation expense for 2016. c. Prepare the journal entry to record the exercise of options by six of the executives on January 1, 2019.

On January 1, 2016, sixty executives are offered a fixed compensatory stock option plan in which each of them will receive options to buy 6,000 shares of $10 par common stock at $40 a share. On the grant date, the fair value per option is $7.50. There is a three-year service period and an estimated annual employee turnover rate of 2%. Required: a. Compute the expected total compensation cost. b. Compute the compensation expense for 2016. c. Prepare the journal entry to record the exercise of options by six of the executives on January 1, 2019.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter15: Contributed Capital

Section: Chapter Questions

Problem 7RE: On January 1, 2019, Phoenix Corporation adopts a performance-based share option plan for 25...

See similar textbooks

Similar questions

A company established an option-based compensation plan. On the grant date, the fair value of an option was $ 15. A total of 100 select employees will receive (at the end of the three-year service period) 40 options if the company’s sales have increased by at least 10%, 60 options if sales have increased by a minimum of 15%, and 100 options if the increase in sales exceeds 20%. In the first year of the plan, the company estimated that sales would increase 12% and that 3% of employees would not complete the period of service. At the end of the second year, the company changed the estimates to 16% and 5% respectively. Calculate the compensation expense for the second year. Using the information provided, calculate the weighted average number of common shares outstanding for purposes of basic earnings per share for the years 2019 and 2020. • Common shares outstanding on January 1, 2019 = 240,000 • On July 1, 2019, 10,000 preferred shares were converted into 50,000 shares common • On…
On October 1, 2018, Farmer Fabrication issued stock options for 100,000 shares to a division manager. Theoptions have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, theoptions are not exercisable unless divisional revenue increases by 5% in three years. Farmer initially estimatesthat it is probable the goal will be achieved. How much compensation will be recorded in each of the next threeyears?
On Jan. 1, 2020, Hufflepuff Industries, Inc. issues stock options for 100,000 shares to a regional manager. The options have an estimated fair value of $6 each. The provide additional incentive for the manager's achievement, the options are not exercisable unless the region revenue increase by 8% in three years. Hufflepuff initially estimates that it is probable that the goal will be achieved. How much compensation will be recorded in 2020, 2021, and 2022, the vesting period?
On January 1, 2019, a company granted 100,000 options to key executives. Each option allows the executive to purchase one share of the company’s $16 par value common stock at a price of $42 per share. The options were exercisable within a 2-year period beginning January 1, 2022. On the grant date, a fair value option-pricing model determines total compensation to be $300,000. On January 1, 2022, 6,000 options were exercised. In the journal entry to record the exercise, how much should be recorded for Paid-in Capital in Excess of Par – common stock?
On January 1, 2021, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 5% in three years. Farmer initially estimates that it is probable the goal will be achieved. How much compensation will be recorded in 2021, 2022, 2023?
On January 1, 2019, a company granted 10,000 options to key executives. Each option allows the executive to purchase one share of the company’s $5 par value common stock at a price of $20 per share. The options were exercisable within a 7-year period beginning January 1, 2022, if the grantee is still employed by the company at the time of the exercise. On the grant date, a fair value option-pricing model determines total compensation to be $792,000. How much compensation expense should be recorded on 12/31/2020? If no compensation expense should be recorded on 12/31/2020, please enter 0. Rounded to the nearest dollar, if necessary.
On October 1, 2024, Halsey Company issued stock options for 300,000 shares to a division manager. The options have an estimated fair value of $3 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Halsey initially estimates that it is probable the goal will be achieved. How much compensation will be recorded in each of the next three years? A.$0 B.$100,000 C.$300,000 D.$900,000
On January 1, 2024, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 5% in three years. Suppose that after one year, Farmer estimates that it is not probable that divisional revenue will increase by 5% in three years. Required: What is the revised estimate of the total compensation? What action will be taken to account for the options in 2025? What journal entry will be needed to account for the options in 2025?
Hua Xin Services offered an incentive stock option plan to its employees. On January 1, 2024, options were granted for 90,000 $1 par common shares. The exercise price equals the $5 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2027, and expire December 31, 2028. Each option has a fair value of $1 based on an option pricing model. What is the total compensation cost for this plan?
On January 1, 2018, Choosy Co. granted to an employee the right to choose either shares or cash payment. The choices are as follows: • Share Alternative: Equal to 25,000 shares with par value of P40. • Cash Alternative: Cash payment equal to the market value of 21,000 shares. The grant is conditional upon the completion of three years of service. On the grant date, on January 1, 2018, the share price P36. The share prices for the three year period are as follows: December 31, 2018 P46 December 31, 2019 P54 December 31, 2020 P60 After taking into account the effect of vesting restriction, Choosy Co. has estimated that the fair value of the share alternative is P45. 1. What is the compensation to be recognized in December 31, 2018? 2. What is the compensation to be recognized in December 31, 2019? 3. What is the compensation to be recognized in December 31, 2020? 4. Assuming on December 31, 2020 the employee opted to receive the Cash Alternative, what is the share premium to be…
Nadal Company has 20 executives to whom it grants compensatory share options on January 1, 2019. At that time, it grants each executive the right to purchase 100 shares of its $5 par common stock at $40 per share after a 3-year service period. The value of each option is estimated to be $10.25 on the grant date. Based on its average employee turnover rate each year, Nadal expects that 2 executives will not vest in the plan. At the end of 2021, Nadal confirms that the actual turnover was the same as expected. On January 5, 2022, 3 executives exercise their options. Required: Prepare Nadal’s journal entries for 2019 through 2022 in regard to its compensatory share option plan.
On October 1, 2016, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 5% in three years. Farmer initially estimates that it is probable the goal will be achieved. How much compensation will be recorded in each of the next three years?