On January 1, 2018, T&Z Company granted 100,000 options to each of its 10 executives (1,000,000...

On January 1, 2018, T&Z Company granted 100,000 options to each of its 10 executives (1,000,000 options in total). Each option allows the executive to purchase one T&Z common shares at a set price of $10. The option is exercisable in three years’ time (January 1, 202, if the executive is still employee with the company. On the grant date the market value of T&Z’s common shares was $7.50, and the fair value of the options compensation was calculated to be $2,250,000. The option expires on January 1, 2023.

On June 1, 2019, two executives retired, and their corresponding options were terminated. On January 1, 2021, 250,000 options were exercised. The market price of a T&Z common share on that day was $13. On June 12, 2022, 200,000 options were exercised. The market price of a T&Z common share on that day was $12. No other options were exercised before the expiry date.

Required: Prepare ALL journal entries associated with the above Compensation Stock Option

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Expert Solution

The information provided is summarised

Number of options per employee	100,000
Number of Executives	10
Total options	1,000,000
Exercise price per share	10
Market Value on Grant Date	7.50
Fair Value on Grant date	2,250,000
Fair Value per share on Grant date	2.25
Exercisable Period	3 years
Commencement date (not clear from the question)	Jan 1 2021
Expiry Date	Jan 1 2023

Vesting Information

June 1 2019- 2 employees retired- terminated stock is	200,000
Jan 1 2021	200,000	Mkt price 13/share
June 12 2022	250000	Mkt price 12/share

1. Journal Entries on Grant Date

No Entries are required to be passed on the Grant Date

2. Jan 1 2021- first year of vesting

As on date, the options have reduced by 200,000 as 2 employees retired and their options are no longer elgible. Hence 800,000 stocks shall vest over period of 3 years- i.e 266,667 per year. The value for entry shall be the fair value calculated which is 2.25 per share. Entry shall be

Retained Earnings (Stock Based Compensation) Expense A/c Dr 600,000 (266,667 x 2.25 /share)

Addl Paid up Captial- Stock options A/c Cr

ekkarill92 answered 1 year ago

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