Question

Under its executive stock option plan, National Corporation granted 20 million options on January 1, 2021, that permit executives to purchase 20 million of the company’s $1 par common shares within the next seven years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $24 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. Suppose that the options expire without being exercised.

Ignoring taxes, what journal entry will National record? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

UNDER ITS EXECUTIVE PLAN -

ON 1,JANUARY,2021 NATIONAL CORPORATION GRANTED 2O MILLION OPTION

EXECUTIVE TO PURCHASE 20 MILLION OF THE COMPANY $1 PER COMMON SHARES WITHIN THE NEXT SEVEN YEAR BUT BEFPORE DEC 31 ,2023

TOTAL COMPENSATION EXPENSES = OPTION GRANTED * FAIR VALUE PER OPTION

=20 MILLION * 3 = $60 MILLION

THE TOTAL COMPENSATION EXPENSES OF $60 MILLION WILL BE EQUALLY RECOGNISED AS AN EXPENSES OVER THRE YEARS .

COMPENSATION EXPENSES TO BE RECOGNISED EACH YEAR -$60/3 YEARS =$ 20 MILLION

JOURNAL ENTRIES-

DATE	PARTICULAR	DEBIT	CREDIT
DEC 31 2021	COMPENSATION EXPENSES	20
	TO PAID IN CAPITAL , STOCK OPTION		20
	(TO RECORD COMPENSATION EXPENSES)
DEC 31 20211	COMPENSATION EXPENSES	20
	TO PAID IN CAPITAL , STOCK OPTION		20
	(TO RECORD COMPENSATION EXPENSES)
DEC 31 2023	COMPENSATION EXPENSES	20
	TO PAID IN CAPITAL , STOCK OPTION		20
	(TO RECORD COMPENSATION EXPENSES)
	OPTION NOT EXCERCISED