Identifying and Analyzing Financial Statement Effects of Share-Based Compensatio

Question

Identifying and Analyzing Financial Statement Effects of Share-Based Compensation
Weaver Industries implements a new share-based compensation plan in 2014. Under the plan, the company's CEO and CFO each will receive non-qualified stock options to purchase 100,000, no par shares. The options vest ratably (1/3 of the options each year) over three years, expire in 10 years and have an exercise (strike) price of $27 per share. Weaver uses the Black-Scholes model to estimate a fair-value per option of $18.  

(a) Use the financial statement effects template to record the compensation expense related to these options for each year 2014 through 2016.

Use negative signs with answers, when appropriate.

Balance Sheet

Noncash

Assets

Contributed

Capital

Earned

Capital

Income Statement

Net

Income

(b) In 2017, the company's stock price is $24. If you were the Weaver Industries CEO, would you exercise your options? Explain.

Balance Sheet

Transaction Cash Asset +

Noncash

Assets

= Liabilities +

Contributed

Capital

+

Earned

Capital

Compensation expense recorded each year Answer Answer Answer Answer Answer

Explanation / Answer

a)

B) NO i will not exercise my option since stock price is lower than exercise price

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