3. Under its executive stock option plan, Berry Corporation granted options on J

Question

3. Under its executive stock option plan, Berry Corporation granted options on January 1,2016, that permit executives to purchase 30 million of the company's S2 par common shares within the next eight years, but not before December 31, 2018 (the vesting date). The exercise price is the market price of the shares on the date of grant, $40 per share. The fair value of the options, estimated by an appropriate option pricing model, is S5 per option. No forfeitures are anticipated. The options are exercised on May 10, 2019, when the market price is $45 per share. Instructions By what amount will Berry's shareholder's equity be increased when the options are exercised? Show the necessary calculation and/or journal entries. (5 points)

Explanation / Answer

Berry's Shareholder Equity Will increase by 30million x ($40+$5) = 1350 Millions

Entry Would be

Cash Dr. 1200 Million ( 40 x 30millions)

Tresury Stocks Dr. 150 Millions (5 x 30 Million)

Common Stock Cr. 60 millions ( 2 x 30millions)

Excess Paid in Capital Cr. 1290 millions (43 x 30 millions)

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