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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 2 years ago
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