3.) The Santiago Corporation provides an executive stock option plan. Under this

Question

3.) The Santiago Corporation provides an executive stock option plan. Under this plan, the company granted options on January 1, 2016 that permits executives to acquire 70 million of the company's $1 par value common shares within the next 8 years, but not before December 31, 2019 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $27 per share. The fair value of the options, estimated by an apropriate option-pricing model, is $4 per option. No forfeitures are anticipated. IGNORE TAXES

A.) Determine the total compensation cost pertaining to the options.

B.) Prepare the appropriate journal entry to record compensation expense on December 31, 2016.

C.) Prepare the appropriate journal entry if all of the options are exercized on the vesting date.

Explanation / Answer

TOTAL COMPENSATION EXPENSE

=> 70 MILLION * 4 PER OPTION => 280 MILLION

B

COMPENSATIO EXPENSE ON 31ST DEC 2016

[(70 * 4 ) / 4] * 1 => 70 MILLION

1.EMPLOYEE COMPENSATION EXPENSE A/C DR. $70 MILLION

TO EMPLOYEE STOCK OPTION A/C CR. $ 70 MILLION

[BEING EXPENSES RECOGNISED]

2. PROFIT AND LOSS A/C DR. $70 MILLION

TO EMPLOYEE COMPENSATION EXPENSE A/C CR. $ 70 MILLION

[ BEING EXPENSES TRANSFERRED TO PROFIT AD LOSS A/C]

ANSWER C

1. BANK A/C DR. $1890 MILLION

TO EMPLOYEE STOCK OPTION A./C CR. $ 1890 MILLION

[ BEING AMOUNT RECEIVED ON EXCERSING OF OPTIONS]

2. EMPLOYEE STOCK OPTION A/C DR $ 2170 MILLION

TO EQUITY SHARE CAPITAL A/C CR $ 70 MILLION

TO SECURITY PREMIUM A/C CR. $ 2100 MILLION

[ BEING SHARES ISSUED TO EMPLOYEES]

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.