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, 2016, that permit executives to purchase 18 million of the company's $1 par common shares within the next seven 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, $22 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. Suppose that the options expire without being exercised Ignoring taxes, what journal entry will National record? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) Journal entry worksheet Record entry for the options that expired without being exercised Note: Enter debits before credits Event General Journal Debit Credit

Explanation / Answer

1) In the given case, the exercise price of the share is equal to the market price. Thus, the expense for issuing the option to the employees will be Nil to the Company. Thus, on the grant date the company is not required to book any expense and perform any accounting entry.

Further, the options are not finally exercised by the employee. Thus, no accounting entry is required at the time of expiry also as no event takes place

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