Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition
1st Edition
ISBN: 9780134047430
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 19, Problem 19.3BE
To determine
The treatment of employee stock option by a company at the end of Year 1 and journal entries at the date of grant.
Given information:
Number of shares offered is 2,000 shares.
Fair value is $30.
Market price and exercise price both is $17.
Vesting period 3 years.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Allied Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 100,000 options were granted for 100,000 $10 par common shares. The exercise price equals the $25 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $15 based upon an option pricing model.
At the end of the first year, it is expected that 100% of employees will exercise the options. By the end of Year 2, it is expected that only 80% of the options will be exercised. Allied chooses to adjust the fair value of options for the estimated forfeitures.
What are the journal entries to reflect the first year and second years' compensation expense? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)
Marie Drugs offered an incentive stock option plan to its employees. On January 1, 2015, options were granted for sixty thousand $0.2 par common shares. The
exercise price, $5, equals the market price of the common stock on the grant date. The options cannot be exercised before January 1, 2018, and expire December 31,
2021. Each option has a fair value of $1 based on an option pricing model. Which is the correct entry to record compensation expense for the year 2015?
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…
Chapter 19 Solutions
Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition
Ch. 19 - What is the allocation period used to expense...Ch. 19 - How do companies account for stock-based...Ch. 19 - Do companies with equity-based compensation plans...Ch. 19 - When accounting for employee stock options, will a...Ch. 19 - Prob. 19.5QCh. 19 - Prob. 19.6QCh. 19 - Prob. 19.7QCh. 19 - Prob. 19.8QCh. 19 - Prob. 19.9QCh. 19 - Prob. 19.10Q
Ch. 19 - Prob. 19.1MCCh. 19 - Prob. 19.2MCCh. 19 - Prob. 19.3MCCh. 19 - Prob. 19.4MCCh. 19 - Prob. 19.5MCCh. 19 - Prob. 19.6MCCh. 19 - Prob. 19.7MCCh. 19 - Prob. 19.8MCCh. 19 - Prob. 19.1BECh. 19 - Prob. 19.2BECh. 19 - Prob. 19.3BECh. 19 - Prob. 19.4BECh. 19 - Prob. 19.5BECh. 19 - Prob. 19.6BECh. 19 - Employee Stock Options, Liability-Classified...Ch. 19 - Prob. 19.8BECh. 19 - Prob. 19.9BECh. 19 - Prob. 19.10BECh. 19 - Prob. 19.11BECh. 19 - Prob. 19.12BECh. 19 - Prob. 19.13BECh. 19 - Prob. 19.14BECh. 19 - Prob. 19.15BECh. 19 - Prob. 19.16BECh. 19 - Prob. 19.17BECh. 19 - Prob. 19.18BECh. 19 - Prob. 19.19BECh. 19 - Prob. 19.20BECh. 19 - Prob. 19.21BECh. 19 - Prob. 19.22BECh. 19 - Prob. 19.23BECh. 19 - Prob. 19.24BECh. 19 - Prob. 19.1ECh. 19 - Prob. 19.2ECh. 19 - Prob. 19.3ECh. 19 - Prob. 19.4ECh. 19 - Prob. 19.5ECh. 19 - Prob. 19.6ECh. 19 - Prob. 19.7ECh. 19 - Prob. 19.8ECh. 19 - Prob. 19.9ECh. 19 - Prob. 19.11ECh. 19 - Prob. 19.12ECh. 19 - Prob. 19.1PCh. 19 - Prob. 19.2PCh. 19 - Prob. 19.3PCh. 19 - Prob. 19.4PCh. 19 - Prob. 19.5PCh. 19 - Prob. 19.6PCh. 19 - Prob. 19.7PCh. 19 - Prob. 19.8PCh. 19 - Prob. 19.9PCh. 19 - Prob. 19.10PCh. 19 - Prob. 19.11PCh. 19 - Prob. 19.12PCh. 19 - Prob. 1JCCh. 19 - Prob. 1FSACCh. 19 - Prob. 2FSACCh. 19 - Prob. 1SSCCh. 19 - Prob. 2SSCCh. 19 - Prob. 3SSCCh. 19 - Prob. 4SSCCh. 19 - Basis for Conclusions Case 1: Are Employee Stock...Ch. 19 - Prob. 2BCC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Ram grants to employees the option to buy shares of stock at $5 per share. A total of 100,000 shares are in the option grant. The service period is 3 years. The option pricing model sets the value of each option at $5.40 on the grant date while the stock market price on the grant date is $6.00. At the end of the first year, how much compensation expense should be recorded? (Lesson 13.2) 4 O a. $200,000 Ob. $180,000 O c. $500,000 O d. $540,000arrow_forwardAccounting for Stock Options On April 1 of Year 1, Badger Corp. announced a stock option incentive plan for its top executives. The plan provides certain executives stock options for the company's common stock. Each option allows for the purchase of one share of common stock, par $1, at a standard option price of $25 per share. The rights are nontransferable and are exercisable three years after the grant date and prior to five years from the grant date. Continuing employment is required through the exercise date, and the requisite service period ends on the first possible exercise date. On April 1 of Year 1, 4,000 options were granted to employees when the market price was $30 per share. Using an option-pricing model, the fair value of the options granted was $36,000. Employees exercised 2,400 options on June 30 of Year 4, when the market price of the stock was $45 per share. . a. Compute the total amount of compensation cost for the grant made on April 1 of Year 1. $ 36,000 ✔ b.…arrow_forwardOn January 1 of Year 1, Holiday Inc. offered a stock option incentive plan to a top executive. The plan provided the executive 300 stock options for Holiday Inc. $1 par value, common stock at an option price of $15 per share through the expiration date of January 1 of Year 7. The fair value of the options based upon an option-pricing model on January 1 of Year 1, is $9,000. The market price at year-end of Holiday Inc. stock is $15 per share on January 1 of Year 1, and $18 on December 31 of Year 1. The requisite service period is 3 years. The options were not exercised due to the stock price remaining below $15 per share after the vesting period. Record the entry on January 1 of Year 7 for the expiration of the stock options. Note: If a line in a journal entry isn't required for the transaction, select "N/A—debit" and "N/A—credit" as the account names and leave the Dr. and Cr. answers blank (zero).arrow_forward
- Darius Inc. granted 200,000 stock options to its employees. The options expire 10 years after the grant date of January 1, 2021. The share price was $23 when the options were issued. Employees who are still with the company five years after the grant date may exercise the options to purchase shares at $45 per share. A consultant has estimated the value of each option on the grant date to be $2.50 per option. How much compensation expense should Darius Inc. record in 2021?  Question 5 options:  $460,000  $500,000  $880,000  $100,000arrow_forwardLCI Cable Company grants 1 million performance stock options to key executives at January 1, 2016. The options entitle executives to receive 1 million of LCI $1 par common shares, subject to the achievement of specific financial goals over the next four years. Attainment of these goals is considered probable initially and throughout the service period. The options have a current fair value of $12 per option. Required: 1. Prepare the appropriate entry when the options are awarded on January 1, 2016. 2. Prepare the appropriate entries on December 31 of each year 2016–2019. 3. Suppose at the beginning of 2018, LCI decided it is not probable that the performance objectives will be met. Prepare the appropriate entries on December 31 of 2018 and 2019.arrow_forwardLCI Cable Company grants 1 million performance stock options to key executives at January 1, 2018. Theoptions entitle executives to receive 1 million of LCI $1 par common shares, subject to the achievement ofspecific financial goals over the next four years. Attainment of these goals is considered probable initially andthroughout the service period. The options have a current fair value of $12 per option.Required:1. Prepare the appropriate entry when the options are awarded on January 1, 2018.2. Prepare the appropriate entries on December 31 of each year 2018–2021.3. Suppose at the beginning of 2020, LCI decided it is not probable that the performance objectives will be met.Prepare the appropriate entries on December 31 of 2020 and 2021.arrow_forward
- Allied Paper Products, Inc. offers a restricted stock award plan to its vice presidents. On January 1, 2018, the company granted 16 million of its $1 par common shares, subject to forfeiture if employment is terminated within twoyears. The common shares have a market price of $5 per share on the grant date.Required:1. Determine the total compensation cost pertaining to the restricted shares.2. Prepare the appropriate journal entries related to the restricted stock through December 31, 2019arrow_forward2. ABC Corporation (a public company) establishes an employee stock option plan on January 1, year 1. The plan allows its employees to acquire 10,000 shares of its P1 par value common stock at P52 per share, when the market price is also P52. The options may not be exercised until five years from the grant date. The grant-date fair value of an option with similar terms and conditions is P8.62. Compensation expense at the end of year 1 is Answer:arrow_forwardOn December 31, 2016, Ferris Corporation granted 10,000 shares of its $1 par value common stock to its employees. The shares are restricted until 2 years of employment is completed (December 31, 2018). Market price of the common stock on that date of grant was $40 per share. Assume that 10 percent of the employees left (before vesting) on January 1, 2018, and 90 percent of the employees completed the vesting requirements on December 31, 2018. Use the Common Stock (Restricted) and the Deferred Compensation accounts as illustrated in the homework. 1. The journal entry to record the recognition of compensation expense on December 31, 2017 2. The journal entry on January 1, 2018 to record the forfeiture on 10 percent of the restricted shares (because the employees did not stay until vested) 3. The journal entries on December 31, 2018 to (1) recognize the remaining compensation expense, and (2) to award the restricted stock to the 90 percent of the employees who vested.arrow_forward
- On January 1, Year 1, Jenny Corp. granted 60,000 share options to employees. The share options will vest at the end of three years provided the employees remain in service until then. The option price is P60 and the par value per share is P50. At the date of grant, the entity concluded that the fair value of the share options cannot be measured reliably. The share options have a life of 4 years which means that the share options can be exercised within one year after vesting. The share prices are P62 on December 31, Year 1, P66 on December 31, Year 2, P75 on December 31, Year 3 and P85 on December 31, Year 4. All share options were exercised on December 31, Year 4. 1. What is the compensation expense for Year 4? A. 0 B. 900k C. 600k D. 660karrow_forwardOn January 1, Year 1, Spaghetti Corp. granted 100 share options each to 500 employees, conditional upon the employee’s remaining in the entity’s employ during the vesting period. The share options vest at the end of a three-year period. On grant date, each share option has a fair value of P30. The par value per share is P100 and the option price is P120. On December 31, Year 2, 30 employees have left and it is expected that on the basis of a weighted average probability, a further 30 employees will leave before the end of the three-year period. On December 31, Year 3, only 20 employees actually left and all of the share options are exercised on such date. What is the compensation expense for Year 3? A. 880,000 B. 470,000 C. 380,000 D. 500,000arrow_forwardYou are assistant controller of Stamos & Company, a medium-size manufacturer of machine parts. OnOctober 22, 2017, the board of directors approved a stock option plan for key executives. On January 1, 2018, aspecific number of stock options were granted. The options were exercisable between January 1, 2020, and December 31, 2024, at 100% of the quoted market price at the grant date. The service period is for 2018 through 2020.Your boss, the controller, is one of the executives to receive options. Neither he nor you have had occasion todeal with GAAP on accounting for stock options. He and you are aware of the traditional approach your companyused years ago but do not know the newer method. Your boss understands how options might benefit him personally but wants to be aware also of how the options will be reported in the financial statements. He has asked youfor a one-page synopsis of accounting for stock options under the fair value approach. He instructed you, “I don’tcare about…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you