In: Accounting
BL Aircraft manufactures and distributes aircraft parts and
supplies. Employees are offered a variety of share-based
compensation plans. Under its nonqualified stock option plan, JBL
granted options to key officers on January 1, 2018. The options
permit holders to acquire 9 million of the company's $1 par common
shares for $38 within the next six years, but not before January 1,
2021 (the vesting date). The market price of the shares on the date
of grant is $42 per share. The fair value of the 9 million options,
estimated by an appropriate option pricing model, is $6 per option.
Because the plan does not qualify as an incentive plan, JBL 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
tax rate is 40%.
Required:
1. Determine the total compensation cost
pertaining to the incentive stock option plan. Determine the total
compensation cost pertaining to the incentive stock option plan.
(Enter your answer in millions (i.e., 10,000,000 should be entered
as 10).)
2. & 3. Record the necessary journal entries
on December 31, 2018, 2019, and 2020. Assume all of the options are
exercised on August 21, 2022, when the market price is $43 per
share. Record the necessary journal entries on December 31, 2018,
2019, and 2020. Assume all of the options are exercised on August
21, 2022, when the market price is $43 per share. (If no entry is
required for a transaction/event, select "No journal entry
required" in the first account field. Enter your answers in
millions rounded to 1 decimal place (i.e., 5,500,000 should be
entered as 5.5).