In: Accounting
SSG Cycles manufactures and distributes motorcycle parts and
supplies. Employees are offered a variety of share-based
compensation plans. Under its nonqualified stock option plan, SSG
granted options to key officers on January 1, 2021. The options
permit holders to acquire 23 million of the company’s $1 par common
shares for $12 within the next six years, but not before January 1,
2024 (the vesting date). The market price of the shares on the date
of grant is $14 per share. The fair value of the 23 million
options, estimated by an appropriate option pricing model, is $3.60
per option.
Required:
1. Determine the total compensation cost
pertaining to the incentive stock option plan.
2. & 3. Prepare the appropriate journal
entries to record compensation expense on December 31, 2021, 2022,
and 2023. Record the exercise of the options if all of the options
are exercised on May 11, 2025, when the market price is $15 per
share.