Question

In: Accounting

On January 1, 2018, David Corp. grants options that permit key executives to acquire 32 million...

On January 1, 2018, David Corp. grants options that permit key executives to acquire 32 million of the company's $1 par common shares within the next 8 years, but not before December 31, 2021 (the vesting date). The exercise price is $27 per share. The fair value of the options, estimated by an appropriate option-pricing model, is $7 per option.

David Corp.'s policy is to estimate option forfeitures. Originally, a forfeiture rate of 3% was expected. During 2020, the third year, David Corp. revised its estimate of forfeitures from 3% to 7%.

What are the journal entry for 2018, 2019, 2020 and 2021 to record compensation expense, considering expected forfeitures.

Solutions

Expert Solution

Working note for Compensation Expense
Year 2018 2019 2020 2021
a)No. of options 32000000 32000000 32000000 32000000
b)Expected Forfeiture 3% 3% 7% 7%
c)Fair value of option 7 7 7 7
d)Cumulative Compensation Expense= (a)*(100%-b)*Fair value* completed years/4 54320000 108640000 156240000 208320000
e) Compensation expense for the year 54320000 54320000 101920000 106400000
Date Journal Entries Debit Credit
2018 Employee benefit expense 54320000
Stock based payment reserve 54320000
(To record compensation expense for year 2018)
2019 Employee benefit expense 54320000
Stock based payment reserve 54320000
(To record compensation expense for year 2018)
2020 Employee benefit expense 101920000
Stock based payment reserve 101920000
(To record compensation expense for year 2018)
2021 Employee benefit expense 106400000
Stock based payment reserve 106400000
(To record compensation expense for year 2018)

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

At January 1, Year 1, AMC Company grants 10,000 options that permit key executives to acquire...
At January 1, Year 1, AMC Company grants 10,000 options that permit key executives to acquire 10,000 of the company’s $1 par common shares within the next five years, but not before December 31, Year 3 (the vesting date). The exercise price is the market price of the shares on the date of grant, $20 per share. The fair value of the options is $4 per option. Eighty percent of the options (or 8,000) are exercised on January 5, Year...
At January 1, Year 1, AMC Company grants 10,000 options that permit key executives to acquire...
At January 1, Year 1, AMC Company grants 10,000 options that permit key executives to acquire 10,000 of the company’s $1 par common shares within the next five years, but not before December 31, Year 3 (the vesting date). The exercise price is the market price of the shares on the date of grant, $20 per share. The fair value of the options is $4 per option. Eighty percent of the options (or 8,000) are exercised on January 5, Year...
On January 1, 2007 Brown issued 10 million stock options that would permit key executives to...
On January 1, 2007 Brown issued 10 million stock options that would permit key executives to buy 10 million shares of the Brown’s $1 par value common stock at an exercise price of $15. The options vest after 5 years and expire in 15 years. The fair value of these options on the grant date was estimated at $4 each. During 2010 Brown Company reacquired 15 million common shares as follows:        2/1/2010       3 million shares at $10 each       ...
Gable Company grants 1.5 million performance stock options to key executives at January 1, 2021. The...
Gable Company grants 1.5 million performance stock options to key executives at January 1, 2021. The options entitle executives to receive 1.5 million of Gable $1 par common shares, subject to the achievement of specific financial goals over the next four years. Attainment of these goals is considered probable initially and throughout the service period. The options have a current fair value of $20 per option. Required: 1. Prepare the appropriate entry when the options are awarded on January 1,...
XYZ Company has 70 executives to whom it grants compensatory share options on January 1, 2013....
XYZ Company has 70 executives to whom it grants compensatory share options on January 1, 2013. The plan grants each executive options to acquire a maximum of 100 shares of the company's $5 par common stock at $50 per share after completing three years of continuous service. However, the number of options that vest depends on the increase in the company's market share over the three year period. The following schedule shows the number of options granted to each executive...
On January 1, 2018, M Company granted 95,000 stock options to certain executives. The options are...
On January 1, 2018, M Company granted 95,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2020, and expire on January 1, 2024. Each option can be exercised to acquire one share of $1 par common stock for $10. An option-pricing model estimates the fair value of the options to be $4 on the date of grant. If unexpected turnover in 2019 caused the company to estimate that 15% of the options would be...
NewCo grants 10,000 options to its CFO, with a grant date of January 15, 2018.  The options...
NewCo grants 10,000 options to its CFO, with a grant date of January 15, 2018.  The options grant the CFO the right to purchase shares (one-for-one) of company stock at a price of $.50 per share.   When NewCo grants the options, what will change on its balance sheet? When the CFO exercises the options where will the 10,000 shares come from? (Who is selling the shares to the CFO?) What will change on NewCo’s balance sheet?
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp....
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp. The investment represented 30% of the total shares outstanding of Pets Corp. and gave Johnson Company the ability to exert significant influence upon the operations of Pets Corp. During the year ended December 31, 2018, Pets Corp. paid dividends of $1.10 per share (declared and paid on November 12, 2018) and reported income of $245 million. The market value of Pets Corp. stock at...
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp....
On January 2, 2018, Johnson Company paid $310 million to acquire 14,000,000 shares of Pets Corp. The investment represented 30% of the total shares outstanding of Pets Corp. and gave Johnson Company the ability to exert significant influence upon the operations of Pets Corp. During the year ended December 31, 2018, Pets Corp. paid dividends of $1.10 per share (declared and paid on November 12, 2018) and reported income of $245 million. The market value of Pets Corp. stock at...
On January 1, 2018, Hugh Morris Comedy Club (HMCC) granted 1.4 million stock options to key...
On January 1, 2018, Hugh Morris Comedy Club (HMCC) granted 1.4 million stock options to key executives exercisable for 1.4 million shares of the company’s common stock at $30 per share. The stock options are intended as compensation for the next three years. The options are exercisable within a four-year period beginning January 1, 2021, by the executives still in the employ of the company. No options were terminated during 2018. The market price of the common stock was $32...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT