Putt Corporation has a compensatory share option plan for its 100 top employees.
ID: 2599228 • Letter: P
Question
Putt Corporation has a compensatory share option plan for its 100 top employees. The plan allows each employee to buy 100 shares of Putt's $5 par value stock for $30 per share after completing a 3-year service period. Putt estimates the value of each of the 10,000 options (100 employees x 100 shares) to be $15 as of the grant date on January 1, Year1. Putt elects to accounts for forfeitures due to employee turnover as they occur. Putt records entries related to the options on December 31 of each year . The stock is worth $42 per share at 12/31/Yeart. The stock is worth $45 per share at 12/31/Year2. The stock is worth $48 per share at 12/31/Years. The stock is worth $50 per share at 12/31/Year4 During Year 2, 10 of the employees leave Putt's employment. The other 90 employees exercise their options on 12/31/Year4. 1. How much compensation expense will Putt record on December 31, Year 1 related to the stock options? 2. How much compensation expense will Putt record on December 31. Year 2 related to the stock options? 3. How much total compensation expense will Putt recognize related to these stock options over the 4-year period?Explanation / Answer
Journal entries first question:
workings:
question 2:
1. During year 1 compensation expense as above= 50000
2. employees left during year 2, let's assume to be at year end, no change in compensation expense= 50000
3. during 3rd year only 90 employees left compensation expense will be= 50000*90/100= 45000
Total for 4 years ( no expense in 4 th year) = 50000+50000+45000= 145000
Date Account Debit Credit 12.31. year 1 Compensation expense 50000 Additional paid in capital- stock options 50000 [ compensation expense on stock options given] 12.31. year 2 Compensation expense 50000 Additional paid in capital- stock options 50000 [ compensation expense on stock options given] 12.31. year 3 Compensation expense 50000 Additional paid in capital- stock options 50000 [ compensation expense on stock options given] 12.31. year 4 Additional paid in capital- stock options 1,50,000 Cash 3,00,000 Common stock 50,000 Paid in capital in excess of par 4,00,000 [Stock issued for employees under stock option plan]Related Questions
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