Under its executive stock option plan, National Corporation granted options on J

Question

Under its executive stock option plan, National Corporation granted options on January 1, 2013, that permit executives to purchase 18 million of the company’s $1 par common shares within the next six years, but not before December 31, 2015 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. Suppose that the options expire without being exercised.

Ignoring taxes, what journal entry will National record? Record entry for the options that expired without being exercised.

Explanation / Answer

Employee stock option outstanding Dr. 90 milion*

To Employee compensation exp 90 Milion

(Being reversal of employee compensation at the end of the exercise period )

*18 milion * $5 = $90 Milion

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