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Gable Company grants 1.5 million performance stock options to key executives at January 1, 2021. The...

Gable Company grants 1.5 million performance stock options to key executives at January 1, 2021. The options entitle executives to receive 1.5 million of Gable $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. Prepare the appropriate entry when the options are awarded on January 1, 2021. 2. Prepare the appropriate entries on December 31 of each year 2021–2024. 3. Suppose at the beginning of 2023, Gable decided it is not probable that the performance objectives will be met. Prepare the appropriate entries on December 31 of 2023 and 2024.

  • 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, 2021.
  • Record the entry that would be made on December 31 of 2021, 2022, 2023 and 2024.
  • Prepare any necessary entry on December 31, 2023 assuming that it is not probable that the performance objectives will be met.
  • Prepare any necessary entry on December 31, 2024 assuming that it is not probable that the performance objectives will be met.

Solutions

Expert Solution

Estimated Compensation Expense = Options expected to Vest*Fair Value

= 1.5 million*$20 = $30 million

Compensation expense for each year over four years = $30 million/ 4 yrs = $7.5 million

  Journal Entries (Amounts in million $)

Event Date General Journal Debit Credit
1 Jan 1, 2021 No Journal Entry
2 Dec 31, 2021 Compensation Expense 7.5
Paid-in capital-stock options 7.5
Dec 31, 2022 Compensation Expense 7.5
Paid-in capital-stock options 7.5
Dec 31, 2023 Compensation Expense 7.5
Paid-in capital-stock options 7.5
Dec 31, 2024 Compensation Expense 7.5
Paid-in capital-stock options 7.5

3)

gable would reverse $15 million ($7.5 million+$7.5 million) expensed in 2021 and 2022

  Journal Entries (Amounts in million $)

Date General Journal Debit Credit
Dec 31, 2023 Paid-in capital-stock options 15
Compensation expense 15
(To reverse the compensation expense charged)
Dec 31, 2024 No Journal Entry required

ekkarill92 answered 2 years ago
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