Concept explainers
(1)
Stock options: Stock options are the stock-based compensation plans provided in the form of an option to buy certain number of shares for a certain price during certain period.
The compensation cost of stock options
(2)
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To journalize: The entry for compensation expense on December 31, 2018, in the books of Corporation WAV
(3)
To journalize: The entry for compensation expense on December 31, 2019, in the books of Corporation WAV
(4)
To journalize: The options exercised in the books of Corporation WAV
(5)
To journalize: The expired options before being exercised in the books of Corporation WAV
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Chapter 19 Solutions
Intermediate Accounting
- Share-based Compensation (Share Options) (PFRS 2)Problem 20. On January 1,2011, Smart Inc. granted 200 share options each to 1,000 employees,conditional upon the employee’s remaining in the entity’s employ during the vesting period. The shareoptions vests at the end of the three-year period. On grant date, each share option has a fair value ofP15. By December 31,2011, 200 employees have left and it is expected that on the basis of aweighted average probability, a further 100 employees will leave during the vesting period. ByDecember 31,2012, 150 employees have left and it is expected that a further 50 employees will leaveduring 2013. By December 31,2013, 100 employees have left. Ten share options are needed for thepurchase of one Ordinary Shares with par value of P10 at P12 per share. On January 1,2014, allshare options are exercised.Required: A. Prepare the adjusting entry on December 31,2011, 2012 and 2013.B. Based on your audit, determine the following:____________1. Compensation…arrow_forwardA-12: Put option On March 1, 2022, Ferguson Corp. purchased a put option on shares of SST stock. The contract was for 100 shares at a strike price of $90 per share, with an expiration date of May 31, 2022. Ferguson settled the option on May 5 (assume cash settlement). Additional information pertaining to the option is provided below.  March 1 March 31 May 5 Price of SST stock: $90 $80 $85 Time value of option: $50 $40 $30 Required:1. What is cost of the option paid by Ferguson Corp. on March 1, 2022?2. Compute the balance of the option account on May 5 before the settlement.arrow_forwardProblem 4: (Share-based compensation: Share options)  On January 1, 2020, COLOR Company granted 250 share options to 300 employees, conditional upon the employees remaining in the entity’s employ during the vesting period. The share options will vest over a three-year period. The fair value of each share option is ₱50. By the end 0f 2020, 25 employees have left and based on a weighted average probability, a further 20 employees will leave during the vesting period. By the end of 2021, only 10 employees have left and a further 28 employees will leave during 2022. By the end of 2022, only 30 employees left the entity. All share options are exercised at December 31, 2022. G. Fill in the amounts per individual account based on the exercise of the options on December 31, 2022 16. Credit to Ordinary share capital?17. Credit to Share premium – ordinary shares?arrow_forward
- Problem 4: (Share-based compensation: Share options)  On January 1, 2020, COLOR Company granted 250 share options to 300 employees, conditional upon the employees remaining in the entity’s employ during the vesting period. The share options will vest over a three-year period. The fair value of each share option is ₱50. By the end 0f 2020, 25 employees have left and based on a weighted average probability, a further 20 employees will leave during the vesting period. By the end of 2021, only 10 employees have left and a further 28 employees will leave during 2022. By the end of 2022, only 30 employees left the entity. All share options are exercised at December 31, 2022. G. Fill in the amounts per individual account based on the exercise of the options on December 31, 2022 14. Debit to Cash?15. Debit to Share options outstanding?arrow_forwardProblem 3-12 On January 1, 2019, an entity granted to a senior executive 20,000 share options, conditional upon the executive’s remaining in the entity’s employ until December 31, 2021. The par value per share is P50. The exercise price is P100. However, the exercise drops to P80 if the entity’s earnings increase by at least an average of 10% per year over the three-year period. On grant date, the entity estimates that the fair value of the share option is P30 if the exercise price is P80. If the exercise price is P100, the fair value of the share option is P25. During 2019 and 2020, the earnings increased by 12% and 11% respectively. However, during 2021, the earnings increased only by 4%. Required: A. Prepare journal entries from 2019 to 2021arrow_forwardOnly typed answer A 9.50% coupon Hess Corp bond yields 1.47% and matures on April 21, 2023. A trade settles on July 22, 2018. Coupon interest is paid April 21 and October 21 of each year. What is the interest that the buyer must pay to the seller in addition to the offer price? Round to 2 decimal places. 23.33 is not the answerarrow_forward
- 24. On 1 July 2023 Cooloola Ltd provided 1 million options to its chief executive officer. The options were valued at $1.00 each and allowed the chief executive officer to acquire shares in Cooloola Ltd for $7 each. The chief executive officer is not permitted to exercise the options before 30 June 2025 but may then exercise them at any time between 1 July 2025 and 30 June 2026. The market price of the Cooloola Ltd shares on 1 July 2023 was $6.50. On 31 December 2025 the share price reaches $7.70, and the chief executive officer decides to exercise her options and acquire the shares in Cooloola Ltd. Required: Account for the issue and exercise of the options in Cooloola Ltd.arrow_forwardQ: inance Department 7. On November 1, 2020 a trader took a long position in three futures contracts on a commodity that expires on March 31", 2021. The initial futures price is $60. On December 31, 2020 the futures price is $61. On Feb 28, 2021 it is $64. The contract is closed out on February 28, 2021 What gain is recognized in the accounting year from January 1 to December 31, 2020? Each contract is on 1000 units of the commodity and the transaction qualities to be considered as a hedge. A. $0 B. $3,000 C. $9,000 D. $12,000arrow_forwardQuestion 15 of 17 View Policies Current Attempt in Progress The stockholders of Meadow Corp approved astock-option plan that grants the companys top three executives op tions to parchase a maximum of 1,000 shares each of Meadow' \$2 par common stock for \$19 per share. The options were granted on January 1 when the fair value of the stock was $20 per share. Meadow determined that the fair value of the compensation is $300,000 and the vesting period is three years. What amount of compensation expense from the options should Meadow record in the year the options were granted? \[ \begin{array}{l} \$ 20,000 \\ \$ 300,000 \\ \$ 60,000 \\ \$ 100,000.arrow_forward
- Risk A1 Q6-2 Question 6. Protective Put                  Suncor Energy Inc. (SU) shares are listed on the New York Stock Exchange. At 9:30 a.m. on January 14, 2016, these shares sold for $21.85 per share. The volatility on the returns of Suncor shares is approximately 24%. The following call and put option contracts were available for the months of January, February, and March:  CALLS Strike/Expiry January 22, 2016 February 19, 2016 March 18, 2016 23 0.34 0.72 0.96 24 0.13 0.41 0.69 25 0.25 0.26 0.40   PUTS Strike/Expiry January 22, 2016 February 19, 2016 March 18, 2016 23 1.28 2.01 2.14 24 2.63 2.80 2.92 25 3.60 3.70 3.95  Each option contract involves 100 shares. The risk-free rates for these three expiration dates are 0.6%, 1%, and 1.2%. All three rates are continuously compounded.  Given the information on Suncor shares and options above, construct a protective…arrow_forwardA 9.50% coupon Hess Corp bond yields 1.47% and matures on April 21, 2023. A trade settles on July 22, 2018. Coupon interest is paid April 21 and October 21 of each year. What is the interest that the buyer must pay to the seller in addition to the offer price?  Round to 2 decimal places.  23.33 is not the answerarrow_forwardRisk A1 Q6-5 Question 6. Protective Put                  Suncor Energy Inc. (SU) shares are listed on the New York Stock Exchange. At 9:30 a.m. on January 14, 2016, these shares sold for $21.85 per share. The volatility on the returns of Suncor shares is approximately 24%. The following call and put option contracts were available for the months of January, February, and March:  CALLS Strike/Expiry January 22, 2016 February 19, 2016 March 18, 2016 23 0.34 0.72 0.96 24 0.13 0.41 0.69 25 0.25 0.26 0.40   PUTS Strike/Expiry January 22, 2016 February 19, 2016 March 18, 2016 23 1.28 2.01 2.14 24 2.63 2.80 2.92 25 3.60 3.70 3.95  Each option contract involves 100 shares. The risk-free rates for these three expiration dates are 0.6%, 1%, and 1.2%. All three rates are continuously compounded.  Given the information on Suncor shares and options above, construct a protective…arrow_forward
- Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning