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

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 2 years ago

On January 1, 2018, M Company granted 95,000 stock options to certain executives. The options are...

On January 1, 2018, M Company granted 95,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2020, and expire on January 1, 2024. Each option can be exercised to acquire one share of $1 par common stock for $10. An option-pricing model estimates the fair value of the options to be $4 on the date of grant. If unexpected turnover in 2019 caused the company to estimate that 15% of the options would be...

On January 1, 2016, Webber Company granted 56,300 stock options to certain executives. The options are...

On January 1, 2016, Webber Company granted 56,300 stock options to certain executives. The options are exercisable no sooner than December 31, 2018, and expire on January 1, 2022. Each option can be exercised to acquire one share of $1 par common stock for $8. An option-pricing model estimates the fair value of the options to be $3 on the date of grant. If unexpected turnover in 2017 caused the company to estimate that 10% of the options would be...

Rutter Inc. granted 300,000 stock options to executives and employees on January 1, 2017. The options...

Rutter Inc. granted 300,000 stock options to executives and employees on January 1, 2017. The options have a strike price is $10 per share and expire in 2019. The par value of the common stock is $1. Using an option pricing model, the company calculates a fair value of $20 per share. The expected service period, or benefit period, is 3 years. a. Prepare the journal entries for 2017 and 2018. b. In 2019, 30% of the options are exercised...

On January 1, 2019, Waterway Corporation granted 10,500 options to key executives. Each option allows the...

On January 1, 2019, Waterway Corporation granted 10,500 options to key executives. Each option allows the executive to purchase one share of Waterway’s $5 par value common stock at a price of $20 per share. The options were exercisable within a 2-year period beginning January 1, 2021, if the grantee is still employed by the company at the time of the exercise. On the grant date, Waterway’s stock was trading at $24 per share, and a fair value option-pricing model...

On January 1, 2016, Vaughn Corporation granted 10,300 options to key executives. Each option allows the...

On January 1, 2016, Vaughn Corporation granted 10,300 options to key executives. Each option allows the executive to purchase one share of Vaughn’s $5 par value common stock at a price of $21 per share. The options were exercisable within a 2-year period beginning January 1, 2018, if the grantee is still employed by the company at the time of the exercise. On the grant date, Vaughn’s stock was trading at $26 per share, and a fair value option-pricing model...

On January 1, 2017, Cullumber Corporation granted 18,300 options to key executives. Each option allows the...

On January 1, 2017, Cullumber Corporation granted 18,300 options to key executives. Each option allows the executive to purchase one share of Cullumber’ common shares at a price of $26 per share. The options were exercisable within a two–year period beginning January 1, 2019, if the grantee was still employed by the company at the time of the exercise. On the grant date, Cullumber’s shares were trading at $22 per share, and a fair value options pricing model determined total...

Rutter Inc. granted (see below for #) stock options to executives and employees on January 1,...

Rutter Inc. granted (see below for #) stock options to executives and employees on January 1, 2017. The options have a strike price is $10 per share and expire in 2019. The par value of the common stock is $ Using an option pricing model, the company calculates a fair value of $20 per share. The expected service period, or benefit period, is (see below) years. Prepare the journal entries for 2017 and 2018. In 2019, (see below) % of...

On January 1, 2015 Carter Company granted a total of 10,000 stock options to 10 company...

On January 1, 2015 Carter Company granted a total of 10,000 stock options to 10 company officers. Each option can be used to purchase one share of the company’s $1 par value common stock at $20 per share. The options are additional compensation for work to be performed over the next two years. They are exercisable during a 5-year period beginning on January 1, 2017. The Magic option-pricing model determines total compensation expense related to these options to be $90,000....

On January 2, 2015, Ryan Company adopted a stock-option plan that granted options to key executives...

On January 2, 2015, Ryan Company adopted a stock-option plan that granted options to key executives to purchase 20,000 shares of the company's $5 par value common stock. The options were granted on January 2, 2015, and were exerciseable two years after the date of grant if the grantee was still an employee of the company. The option exercise price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $400,000. What is...

Under its executive stock option plan, Worcester Corporation granted options on January 1,2018, that permit executives...

Under its executive stock option plan, Worcester Corporation granted options on January 1,2018, that permit executives to purchase 20 million of the company's $1 par common shares within the next eight years, but before December 31,2020 ( the vesting date). the exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. No forfeitures are anticipated. The...

Question