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In: Accounting

LCI Cable Company grants 1.5 million performance stock options to key executives at January 1, 2018....

LCI Cable Company grants 1.5 million performance stock options to key executives at January 1, 2018. The options entitle executives to receive 1.5 million of LCI $1 par common shares, subject to the achievement of specific financial goals over the next four years. Attainment of these goals is considered probable initially and throughout the service period. The options have a current fair value of $20 per option.

Required:
1. & 2. Record the necessary journal entries.
3. Suppose at the beginning of 2020, LCI decided it is not probable that the performance objectives will be met. Prepare the appropriate entries on December 31 of 2020 and 2021.

1. Record the grant of 1.5 million performance stock options when the options have a fair value of $20 per option as on January 01, 2018.

2. Record the entry that would be made on December 31 of 2018, 2019, 2020 and 2021.

3a. Prepare any necessary entry on December 31, 2020 assuming that it is not probable that the performance objectives will be met.

3b. Prepare any necessary entry on December 31, 2021 assuming that it is not probable that the performance objectives will be met

Solutions

Expert Solution

January 01, 2018.

No journal entry required

Until the end of reporting period, but compensation must be estimated at the grant date.

Compensation = options expected to vest *fair value = estimated total compensation

                        = 1.5 million * $20

                        = $ 30 million

December 31 of 2018, ($ million)

Compensation Expenses ($30 million /4) 7.5

To paid in capital - stock options 7.5

December 31 of 2019, ($ million)

Compensation Expenses ($30 million /4) 7.5

To paid in capital - stock options 7.5

December 31 of 2020, ($   million)

Compensation Expenses ($30 million /4) 7.5

To paid in capital - stock options 7.5

December 31 of 2021, ($   million)

Compensation Expenses ($30 million /4) 7.5

To paid in capital - stock options 7.5

3a)

Date

General Journal

Debit

Credit

December 31, 2018

Paid in Capital - Stock Options

(1.5 Million Options * $20 Per Option = $30 Million)

($30 Million * 1/2 = $15

$15

Compensation Expense

$15

3b)

No journal entry required.

ekkarill92 answered 3 months ago
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