Question
In: Accounting
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 options are exercised on April 2, 2021, when the market price is $21 per share. Prepare the journal entries.
1 - 12/31/2020
2- 04/02/2021
Solutions
Expert Solution
Solution:
Total compensation expense = granted options * fair value of options
=20 million * 5$ = 100 million
It is for three years, i.e.; 2018 to 2020
Compensation expense for 1 year=100 million /3 = 33.33 million
Journal entry
|
Date |
Entry |
Debit |
Credit |
|
31 Dec2020 |
Compensation expense A/c Dr. Paid in capital-stock options (compensation expenses) |
33.33 million |
33.33 million |
|
02 Apr 2021 |
Cash A/c Dr. (20 million*18$) Paid in capital-stock options a/c Dr. Common stock (20 million *$1 par) Paid in capital excess of par (bal. fig) (360+100-200(options exercised) |
360 million 100 million |
20 million 440million |
*Market price on the date of options exercise is not relevant for this problem
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