On March 31, 20x3, an entity subject to IFRS provided their senior employees with a 40,000...

On March 31, 20x3, an entity subject to IFRS provided their senior employees with a 40,000 stock option grant. The exercise price is $7.50 and an option valuation model values the grant at $80,000. The vesting period ends on March 31, 20x5 and the exercise period ends on December 31, 20x5.

The following are management’s estimates of the % of options vesting: •

December 31, 20x3 – 38,000 options •

December 31, 20x4 – 36,500 options •

March 31, 20x5 – 36,800 options actually vested

On April 1, 20x5, 20,000 options were exercised when the stock price was $26.30. On December 22, 20x5, the remaining options were exercised when the stock price was $19.40.

Required – Write all journal entries for the above.

Expert Solution

Per option value (80000/40000) = $2	2
Number of months [March 31, 20x3 to March 31, 20x5]	24 months

Estimated value of options vesting (38000*2)	76,000
Cumulative Compensation expense Up to Year December 31, 20x3 (76000*9/24)		28,500
Less: recognized in earlier year		-
Compensation expense For Year 20x3		28,500

Estimated value of options vesting (36500*2)	73,000
Cumulative Compensation expense Up to Year December 31, 20x4 (9 months from 20x3 + 12 months from 20x4) (73000*21/24)		63,875
Less: recognized in earlier year		28,500
Compensation expense For Year 20x4		35,375

Actual value of options vesting (36800*2)	73,600
Cumulative Compensation expense Up to Year March 31, 20x5 (73600*24/24)		73,600
Less: recognized in earlier year		63,875
Compensation expense For Year 20x5		9,725

Date	General journal	Debit	Credit
December 31, 20x3	Compensation expense	28,500
	Paid in capital – stock options		28,500
	(To record Compensation expense.)

December 31, 20x4	Compensation expense	35,375
	Paid in capital – stock options		35,375
	(To record Compensation expense.)

March 31, 20x5	Compensation expense	9,725
	Paid in capital – stock options		9,725
	(To record Compensation expense.)

April 1, 20x5	Cash (20000*7.50)	150,000
	Paid-in capital - stock options (20000*2)	40,000
	Common stock, $1 par (20000*1)		20,000
	Paid-in capital – excess of par (Remaining value)		170,000
	(To record options are exercised.)

December 22, 20x5	Cash (16800*7.50)	126,000
	Paid-in capital - stock options (16800*2)	33,600
	Common stock, $1 par (20000*1)		20,000
	Paid-in capital – excess of par (Remaining value)		139,600
	(To record options are exercised.) (36800-20000=16800)

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