Exercise 19-8 (Algo) Stock options exercise; expirations [LO19-2] Walters Audio Visual Inc. offers an incentive stock...

Exercise 19-8 (Algo) Stock options exercise; expirations [LO19-2]

Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2021, options were granted for 64 million $1 par common shares. The exercise price is the market price on the grant date—$6 per share. Options cannot be exercised prior to January 1, 2023, and expire December 31, 2027. The fair value of the 64 million options, estimated by an appropriate option pricing model, is $1 per option.

Required:

1. Determine the total compensation cost pertaining to the incentive stock option plan.
2. to 5. Prepare the appropriate journal entries to record compensation expense on December 31, 2021 and 2022. Prepare the appropriate journal entry to record the exercise of 75% of the options on March 12, 2023, when the market price is $7 per share and the entry on December 31, 2027, when the remaining options that have vested expire without being exercised.

Solutions

Expert Solution

1.)

Total Compensation Cost

$ 64

Millions

(64 x 1 )

				$ Millions
2. to 5.)	Date	Account Titles	Debit	Credit
	December 31,2021	Compensation Expense	32
		Additional Paid in Capital-Stock Option		32
		(64 / 2 )

	December 31,2022	Compensation Expense	32
		Additional Paid in Capital-Stock Option		32
		(64 / 2 )

	March 12,2023	Cash ( 64 x 75% x 6 )	288
		Additional Paid in Capital-Stock Option	48
		( 64 x 75% )
		Common Shares ( 64 x 1 )		64
		Additional Paid in Capital-Common Shares		272

	December 31,2027	Additional Paid in Capital-Stock Option	16
		( 64 x 25% )
		Additional Paid in Capital - Expired Stock Option		16

ekkarill92 answered 1 year ago

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