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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Share Options

A corporation has a non-compensatory share purchase plan for all its employees and a compensatory share option plan for some of its corporate officers.

Required:

  1. 1. Compare and contrast the accounting at the date the stock is issued for the non-compensatory share purchase plan with that for the compensatory share option plan.
  2. 2. What entry should be made for the compensatory share option plan at the date of the grant?

1.

To determine

Compare and differentiate the accounting at the date the stock is issued for the non-compensatory share option plan with that for a compensatory share option plan

Explanation

Share option plan: This is an option given to an employee to buy a certain number of shares of stock of the company at a pre-determined price during certain period of time.

Non-compensatory share option plan: This is an option plan given to employees where they don’t receive any shares as compensation instead they have an option to buy shares of their company at a discounted price.

The journal entry on the date the stock is issued for Non-compensatory share purchase plan is as follows:

  • Cash or any appropriate liability account will be debited.
  • Capital Stock, on par value of the stock will be credited.
  • Additional Paid-in Capital will be credited for the excess of the cash price over the par value...

2.

To determine

Identify the journal entry that should be recorded for the compensatory share option plan at the date of the grant.

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