Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Question
Chapter 19, Problem 19.6BE
To determine
The treatment of exercising the stock option plan by theemployee and journal entries to record it.
Giveninformation:
Number of shares given as an option is 5,000
Par value of common stock is $1.
Fair value of shares at grant date is $100,000.
Exercise price per option is $8 each.
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Students have asked these similar questions
A stock option plan may or may not be intended to compensate employees for their work. The compensation expense for compensatory stock option plans should be recognized in the periods the a. employees become eligible to exercise the options. b. employees perform services. c. stock is issued. d. options are granted.
Assume that Amazon.com has a stock-option plan for top management. Each stock option represents the right to purchase a share of
Amazon $1 par value common stock in the future at a price equal to the fair value of the stock at the date of the grant. Amazon has
5,700 stock options outstanding, which were granted at the beginning of 2020. The following data relate to the option grant.
Exercise price for options
$39
Market price at grant date (January 1, 2020)
$39
Fair value of options at grant date (January 1, 2020)
$6
Service period
5 years
Compensatory stock option plans are a common component of employee compensation packages, allowing employees to purchase company stock at a predetermined price.
The financial accounting for such plans involves various considerations. Let's examine a set of statements related to compensatory stock option plans and identify which
statement does not accurately reflect the financial accounting principles associated with these plans.
Question:
Which of the following statements regarding the financial accounting for compensatory stock option plans is not accurate?
Multiple Choice
A) Stock options' fair value is recognized as compensation expense over the vesting period.
B) The common stock issued upon the exercise of stock options is recorded at its fair market value.
C) Changes in the market value of stock options during the vesting period do not impact the recorded compensation expense.
D) The par value of common stock issued upon the conversion of options increases total owners' equity.
Chapter 19 Solutions
Intermediate Accounting
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. 19.25BECh. 19 - Prob. 19.26BECh. 19 - Prob. 19.27BECh. 19 - Prob. 19.28BECh. 19 - Prob. 19.1ECh. 19 - Prob. 19.2ECh. 19 - Employee Stock Options. Equity-Classified Awards....Ch. 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. 19.10ECh. 19 - Prob. 19.11ECh. 19 - Prob. 19.12ECh. 19 - Prob. 19.13ECh. 19 - Prob. 19.14ECh. 19 - Prob. 19.15ECh. 19 - Prob. 19.16ECh. 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. 2FSCCh. 19 - Prob. 1SSCCh. 19 - Prob. 2SSCCh. 19 - Basis for Conclusions Case 1: Are Employee Stock...Ch. 19 - Prob. 2BCC
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Similar questions
- Prepare the journal entries for the first year of the stock-option plan. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit >arrow_forwardDuring 2024, Arrieta Corporation issues stock options to an employee. In the next year, the employee leaves the company (and fails to satisfy the service requirement). Arrieta Corporation's journal entry to record the change in estimate of the options includes Question 11 options: a) a debit to the Compensation Expense and a credit to the Unearned Compensation Expense b) no entry needed. c) a debit to the Paid-in Capital - Stock Options and a credit to the Paid-in Capital - Expired Stock Options account. d) a debit to the Paid-in Capital - Stock Options account and a credit to the Compensation Expense account.arrow_forwardPearl Company had the following stockholders' equity as of January 1, 2020. Common stock, $5 par value, 21,100 shares issued $ 105,500 Paid-in capital in excess of par-common stock 304,000 Retained earnings 317,000 Total stockholders' equity $726,500 During 2020, the following transactions occurred. Feb. 1 Pearl repurchased 2,020 shares of treasury stock at a price of $ 21 per share. Mar. 1 740 shares of treasury stock repurchased above were reissued at $ 19 per share. Mar. 18 520 shares of treasury stock repurchased above were reissued at $ 14 per share. Apr. 22 550 shares of treasury stock repurchased above were reissued at $ 23 per share.arrow_forward
- Prepare journal entries relating to the stock option plan on the following dates using the fair value method. If no entry is needed, write "No Entry Necessary." Show your work for partial credits. On November 1, 2019, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 30,000 shares of common stock at $40 per share. The par value is $10 per share. On January 1, 2020, options were granted to each of five executives to purchase 30,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. It is assumed that the options were for services performed equally in 2020 and 2021. The Black-Scholes option pricing model determines total compensation expense to be $3,200,000. At February 1, 2022, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited on January 1, 2028arrow_forwardA supervisory employee is a recipient of a stock option which vested during the year. The following data pertains to the exercise of the option and its subsequent sale by the employee: Value of stocks at vesting date P45,000 Exercise price of option 30,000 Selling price of stocks 50,000 How much shall be the supplemental compensation of the employee which will be added to his regular compensation and will be subject to the regular income tax?arrow_forwardWhich of the following is NOT a characteristic of a non-compensatory employee stock option plan (ESOP)? a. The plan requires the employee to pay an upfront premium. b. There is only a small discount from the market price. c. The plan is generally available to all employees. d. The plan is accounted for as compensation expense. Clear my choicearrow_forward
- Prepare Journal entries for the following cases. a) To record sale of shares on a subscription basis b) To record collection of down payment c) Collection of share subscriptions receivable d) To record issuance of shares e) To record forfeit of payment from defaulting subscribersarrow_forwardA discount given to employees for the purchase of shares is recognized as a/n ____________ compensation. liability-settled cash-settled asset-settled equity-settledarrow_forwardA discount given to employees for the purchase of shares is recognized as a/n ____________ compensation A.asset-settled lB.iability-settled C.cash-settled D.equity-settledarrow_forward
- A potential investor in a new issue must be given a(n): Group of answer choices a. annual stockholders' report. b. investment newsletter. c. established brokerage fee schedule. d. prospectus. e. brokerage report.arrow_forwardIf the employee has the choice as to whether the settlement is in cash or by issuance of equity securities, the share-based payment is accounted as A. A financial liability B. Compound financial instrument C. An equity instrument D. Either equity or financial liability but not botharrow_forwardhow do you Prepare the journal entry to record the issuance of stock during the year? The picture is attachedarrow_forward
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