2. (10 points) Under its executive stock option plan, Star Corporation granted o

Question

2. (10 points) Under its executive stock option plan, Star Corporation granted options on January 1, 2016, that permit executives to purchase 4 million of the company's S3 omm vesti par on shares within the next seven years, but not before December 31, 2021 (the ng date). The exercise price is the market price of the shares on the date of grant, $12 per share. The fair value of the options, estimated by an appropriate option a. Ignoring taxes, what is the total compensation cost pertaining to the stock options? d. Suppose that unexpected turnover during 2017 caused the forfeiture of 20% of the pricing model, is $9 per option. No forfeitures are anticipated. Required b. Prepare the journal entry on January 1, 2016. c. Prepare the journal entry on December 31, 2016 stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2017 and 2018. (11 points) Under its executive stock option plan, Trend Corporation granted options on January 1, 2016, that permit executives to purchase 15 million of the company's $2 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, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. 3. unense on December

Explanation / Answer

Solution:

a) Calculation of the Total Compensation Cost Pertaining to the Stock Options:

Therefore, the Total Compensation Cost Pertaining to the Stock Options is $36 Millions.

b) Preparing the Journal entry on January 1, 2016:

No Journal Entry Required on January 1, 2016:

c) Preparing Journal Entry on December 31, 2016:

d) Preparing the Journal Entries on December 31, 2017 and 2018:

Number of Options Granted 4 Millions Fair value of each option $9.00 Total Compensation $36 Millions

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