SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees
ID: 2594477 • Letter: S
Question
SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2016. The options permit holders to acquire 12 million of the company's $1 par common shares for $11 within the next six years, but not before January 1, 2019 (the vesting date). The market price of the shares on the date of grant is $13 per share. The fair value of the 12 million options, estimated by an appropriate option pricing model, is $3 per option Required 1. Determine the total compensation cost pertaining to the incentive stock option plan. (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).) Total compensation cost million 2. & 3. Prepare the appropriate journal entries to record compensation expense on December 31, 2016 2017 and 2018. Record the exercise of the options if all of the options are exercised on May 11 2020, when the market price is $14 per share. (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).) View transaction list Journal entry worksheet 4 Record compensation expense on December 31, 2016 Note: Enter debits before credits Date General Journal Debit Credit December 31, 2016Explanation / Answer
1.Total compensation expense:
Compensation expense per share = Discount between market price and option price.= $13-3 = $10 per share.
Total compensation cost = 12 millon Option *10 per share
= 120 million.
On December 31,2016.
Employee compensation expense a/c Dr 40 millon (120*1/3)
To employee stock option outstanding a/c 40 millon.
(Being employee compensation expense recognized in respect of 120 million options granted to employees at discount of $10 each, amortized on straight line basis over 3 years)
On December 31,2017.
Employee compensation expense a/c Dr 40 million
To employee stock option out standing account 40 million.
(Being compensation expense recognized in respect of 120 Million options granted to employees at a discount of $10each, amortized on straight basis over 3 years)
December 2018:
Employee compensation expense a/c Dr 40 million
To employee stock option out standing account 40 million
(Being compensation expense recognized in respect of 120 million options granted to employees at discount of $10 each amortized on straight line basis over 3 years)
May11,2020
Bank account Dr 36 millon (12 millon*3)
Stock option outstanding a/c. 120 million
To share capital. 12 millon(12*1)
To securities premium. 144 million (12*12)
(Being exercise of 12 millon options at an exercise price of $3 per share remaining transferred from stock option outstanding account)
As on may 11,2020 fair Value of share is not taken.
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