Employee Stock Options. Equity-Classified Awards. Journal Entries. Davidson Company compensates its key employees by offering stock options as part of total compensation. On January 1 of the current year Davidson granted 80 000 options to acquire 80.000 shares of its $1 par value common stock at an exercise price of $37 per share. The market price on the date of the grant is also $37 per share so there is no intrinsic value. At grant date the fair value of the options is $4 000,000 or $50 per option. The initial vesting probability is assumed to be 60%. The option plan qualifies as an equity-classified award. There is a 2-year vesting period required before employees can purchase the shares.
Required
- a. Assuming no changes in vesting probability prepare the journal entries required to record compensation expense over the vesting period
- b. Prepare all journal entries required in Year 2 assuming that the vesting probability increases to 80% in Year 2 Assume that the company chooses to adjust the fair value for the estimated forfeitures
- c. Assume that employees exercise 80% of the options expected to vest from part (b) and the other 20% expire. Prepare any journal entries required to record the exercise and expirations
- d. Assume that 20% of the options are forfeited in Year 1 and another 20% are forfeited in Year 2. Assume that the company accounts for forfeitures when they occur. Prepare all journal entries in Year 1 and Year 2, including the
journal entry to record the exercise of the options.
Trending nowThis is a popular solution!
Chapter 19 Solutions
Intermediate Accounting (2nd Edition)
- Comprehensive Young Corporation has been operating successfully for several years. It is authorized to issue 24,000 shares of no-par common stock and 6,000 shares of 8%, 100 par preferred stock. The Contributed Capital section of its January 1, 2019, balance sheet is as follows: Part a. A shareholder has raised the following questions: 1. What is the legal capital of the corporation? 2. At what average price per share has the preferred stock been issued? 3. How many shares of common stock have been issued (the common stock has been issued at an average price of 23 per share)? Part b. The company engaged in the following transactions in 2019: Required: 1. Answer the questions in Part a. 2. Prepare journal entries to record the transactions in Part b. 3. Prepare the Contributed Capital section of Youngs December 31, 2016, balance sheet.arrow_forwardOn January 2, 2019, Brust Corporation grants its new CFO 2,000 restricted share units. Each of the time-vested restricted share units entitles the CFO to receive one share of Brust common stock if she remains an employee of the company for 4 years. On January 2, 2019, shares of Brusts 1 par value common are trading at 29.50 per share. The company estimates that the CFO will complete all 4 years of required service with the company. Prepare the journal that Brust should make each year to account for the restricted share units.arrow_forwardOn January 1, Year 1, Sterling Corporation issued stock options for 260,000 shares to its CEO. The options have an estimated fair value of $6 each. To provide additional incentive, the options are not exercisable unless revenue increases by 4% in three years. Sterling initially estimates that it is probable the goal will be achieved. What is compensation expense for Year 1?arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning