In: Accounting
On October 15, 2020, the board of directors of Ensor Materials
Corporation approved a stock option plan for key executives. On
January 1, 2021, 30 million stock options were granted, exercisable
for 30 million shares of Ensor's $1 par common stock. The options
are exercisable between January 1, 2024, and December 31, 2026, at
80% of the quoted market price on January 1, 2021, which was $15.
The fair value of the 30 million options, estimated by an
appropriate option pricing model, is $5 per option. Ensor chooses
the option to recognize forfeitures only when they occur.
Ten percent (3 million) of the options were forfeited when an
executive resigned in 2022. All other options were exercised on
July 12, 2025, when the stock’s price jumped unexpectedly to $33
per share.
Required:
1. When is Ensor’s stock option measurement
date?
2. Determine the compensation expense for the
stock option plan in 2021. (Ignore taxes.)
3. Prepare the journal entries to reflect the
effect of forfeiture of the stock options on Ensor’s financial
statements for 2022 and 2023.
5. Prepare the journal entry to account for the
exercise of the options in 2025.