Question
In: Accounting
Walters Audio Visual, Inc. offers a stock option plan to its regional managers. On January 1,...
Walters Audio Visual, Inc. offers a stock option plan to its
regional managers. On January 1, 2018, 40 million options were
granted for 40 million $1 par common shares. The exercise price is
the market price on the grant date, $8 per share. Options cannot be
exercised prior to January 1, 2020, and expire December 31, 2024.
The fair value of the options, estimated by an appropriate option
pricing model, is $2 per option. Because the plan does not qualify
as an incentive plan, Walters will receive a tax deduction upon
exercise of the options equal to the excess of the market price at
exercise over the exercise price. The income tax rate is 40%.
Required:
1. Determine the total compensation cost
pertaining to the stock option plan.
2. to 4. Assume all of the options are exercised
on March 20, 2023, when the market price is $12 per share. Prepare
the necessary journal entries.
5. & 6. Assume the option plan qualifies as an
incentive plan if all of the options are exercised on March 20,
2023, when the market price is $11 per share. Prepare the necessary
journal entries.
Solutions
ekkarill92 answered 2 years agoRelated Solutions
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an appropriate option pricing model, is $4 per option. No...
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