On October 15, 2012, the board of directors of Ensor Materials Corporation appro
ID: 2478271 • Letter: O
Question
On October 15, 2012, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2013, 38 million stock options were granted, exercisable for 38 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2016, and December 31, 2018, at 80% of the quoted market price on January 1, 2013, which was $10. The fair value of the 38 million options, estimated by an appropriate option pricing model, is $3 per option.
3.8 million options were forfeited when an executive resigned in 2014. All other options were exercised on July 12, 2017, when the stock's price jumped unexpectedly to $36 per share.
Determine the compensation expense for the stock option plan in 2013. (Ignore taxes.) (Enter your answer in millions.)
What is the effect of forfeiture of the stock options on Ensor's financial statements for 2014 and 2015? (If no entry is required for a particular transaction, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
How should Ensor account for the exercise of the options in 2017? (If no entry is required for a transaction, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)
On October 15, 2012, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2013, 38 million stock options were granted, exercisable for 38 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2016, and December 31, 2018, at 80% of the quoted market price on January 1, 2013, which was $10. The fair value of the 38 million options, estimated by an appropriate option pricing model, is $3 per option.
3.8 million options were forfeited when an executive resigned in 2014. All other options were exercised on July 12, 2017, when the stock's price jumped unexpectedly to $36 per share.
Explanation / Answer
1)Ensor’s stock option measurement date is January 1, 2013
..
2)The compensation expense for the stock option plan in 2013. = (38Million*3)/3)
=$38 million
..
3)The effect of forfeiture of the stock options on Ensor's financial statements for 2014 and 2015
= the compensation expense for the stock option plan in 2014 & 2015 will get reduced as compared to year-2013
Employee Compenstaion expense for the year 2014 = [(38m-3.8m)*3]*(2/3)- 38m
= 68.4 m - 38m
= $30.4 m
Employee Compenstaion expense for the year 2014 = [(38m-3.8m)*3] - 38 - 30.4
= $34.2
..
Journal Entry
Debit Employee Compnestaion Expesne = xx
Credit ESOP = xx
..
..
5)Jounal Entry
Debit Bank (38*10*80%) = 304m
Debit ESOP = 102.60m
Credit Common Stock (34.2*1) = 34.2 m
Credit Capital paid in excess of par value 372.40
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