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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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Fixed Share Option Compensation Plan On January 1, 2019, Pepin Company adopts a compensatory share option plan for its 50 executives. The plan allows each executive to purchase 200 shares of its $2 par common stock for $30 per share after completing a 3-year service period. Pepin estimates the value of each option to be $14 on the grant date, and the company expects that 15% of the options will be forfeited and uses this rate in its compensation cost calculations in 2019. At the end of 2021, Pepin determined that the actual turnover was 7 executives for the entire service period. On January 6, 2022, 8 executives exercise their options.

Required:

  1. 1. Prepare a schedule of Pepin’s compensation computations for its compensatory share option plan for 2019 through 2021 (round all computations to the nearest dollar).
  2. 2. Prepare Pepin’s memorandum entry on the grant date and journal entries for 2019 through 2022 in regard to this plan.

1.

To determine

Prepare a schedule of Corporation P’s compensation computation for its compensatory share option plan for 2019.

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.

Prepare a schedule of Corporation P’s compensation computation for its compensatory share option plan for 2019:

Particulars201920202021
Total compensated cost ($14×200×50×0.85)$119,000$119,000$120,400 (1)
Fraction of service period expired1/31/31/3
Compensation expense $39,667$79,333$120,400
Previously recognized compensation expense(0)(39,667)($79,333)
Current compensation expense<

2.

To determine

Prepare a memorandum entry on the grant date and journal entries for 2019 to 2022 related to the given plan.

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