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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Share Option Compensation Plans On November 6, 2018, Gunpowder Corp.’s board of directors approved a share option plan for key executives. On January 2, 2019, a specific number of share options were granted. These options were exercisable between January 2, 2021, and December 31, 2023, at 90% of the quoted market price on January 2, 2019. The service period is for 2019 and 2020. Some options were forfeited when an executive resigned in 2020. All other options were exercised during 2021.

Required:

  1. 1. How should Gunpowder determine the compensation expense, if any, for the share option plan in 2019?
  2. 2. What is the effect of forfeiture of the share options on Gunpowder’s financial statements for 2020?
  3. 3. What is the effect of the share option plan on the balance sheet at December 31, 2021? Be specific as to the changes in balance sheet accounts between November 6, 2018, and December 31,2021.

1.

To determine

Explain the manner Corporation G would determine the compensation expense for the share option plan in 2019.

Explanation

Share option compensation 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.

Corporation G should determine the compensation expense for 2019 as follows:

  • Compute the total compensation cost of options as

    Fair market value�

2.

To determine

Explain the effect of forfeiture of the share options on Corporation G’s financial statements for 2020.

3.

To determine

Explain the effect of the share option plan on the balance sheet at December 31, 2021. Explain specifically as to the changes in balance sheet accounts between November 6, 2018, and December 31, 2021.

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