In: Accounting
On October 15, 2017, the board of directors of Ensor Materials
Corporation approved a stock option plan for key executives. On
January 1, 2018, 18 million stock options were granted, exercisable
for 18 million shares of Ensor's $1 par common stock. The options
are exercisable between January 1, 2021, and December 31, 2023, at
80% of the quoted market price on January 1, 2018, which was $15.
The fair value of the 18 million options, estimated by an
appropriate option pricing model, is $6 per option. Ensor chooses
the option to recognize forfeitures only when they occur.
Ten percent (1.8 million) of the options were forfeited when an
executive resigned in 2019. All other options were exercised on
July 12, 2022, when the stock’s price jumped unexpectedly to $37
per share.
Required:
1. When is Ensor’s stock option measurement
date?
2. Determine the compensation expense for the
stock option plan in 2018. (Ignore taxes.)
3. & 5. Prepare the necessary journal
entries.