Question
In: Accounting
On January 1, 2018, Adams-Meneke Corporation granted 24 million incentive stock options to division managers, each...
On January 1, 2018, Adams-Meneke Corporation granted 24 million
incentive stock options to division managers, each permitting
holders to purchase one share of the company’s $1 par common shares
within the next six years, but not before December 31, 2020 (the
vesting date). The exercise price is the market price of the shares
on the date of grant, currently $22 per share. The fair value of
the options, estimated by an appropriate option pricing model, is
$5 per option. Management’s policy is to estimate forfeitures. No
forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost
pertaining to the options on January 1, 2018.
2. Prepare the appropriate journal entry to record
compensation expense on December 31, 2018.
3. Unexpected turnover during 2019 caused an
estimate of the forfeiture of 5% of the stock options. Determine
the adjusted compensation cost, and prepare the appropriate journal
entry(s) on December 31, 2019 and 2020.
Solutions
Expert Solution
1) Total Compensation cost on January 1, 2018 = No. of Stock options*Fair Value of Option
= 24 million*$5 per option = $120 million vested over 3 years
2) Compensation Expense for 2018 = $120 million/3 yrs = $40 million
Journal Entry (Amounts in $ million)
| Date | Account Titles and Explanations | Debit | Credit |
| Dec. 31, 2018 | Compensation Expense | 40 | |
| Paid in Capital-Restricted Stock | 40 | ||
| (To record compensation expense for 2018) |
3) New Total Compensation = Old total compensation*Forefeiture rate
= $120 million*(1-5%)
= $120 million*95% = $114 million
Compensation cost for 2019 = (New total compensation*2/3) - Compensation cost for 2018
= ($114 million*2/3) - $40 million = $76 - $40 = $36 million
Compensation cost for 2020 = (New total compensation*3/3)-Compensation cost for 2018 and 2019
= ($114 million*3/3) - $40 million - $36 million
= $114 million - $40 million - $36 million = $38 million
Journal Entry (Amounts in $ million)
| Date | Account Titles and Explanations | Debit | Credit |
| Dec. 31, 2019 | Compensation Expense | 36 | |
| Paid in Capital-Restricted Stock | 36 | ||
| (To record compensation expense for 2019) | |||
| Dec. 31, 2020 | Compensation Expense | 38 | |
| Paid in Capital-Restricted Stock | 38 | ||
| (To record compensation expense for 2020) |
ekkarill92 answered 1 year agoRelated Solutions
On January 1, 2018, Adams-Meneke Corporation granted 90 million incentive stock options to division managers, each...
On January 1, 2018, Adams-Meneke Corporation granted 90 million
incentive stock options to division managers, each permitting
holders to purchase one share of the company’s $1 par common shares
within the next six years, but not before December 31, 2020 (the
vesting date). The exercise price is the market price of the shares
on the date of grant, currently $20 per share. The fair value of
the options, estimated by an appropriate option pricing model, is
$2 per option. Management’s...
On January 1, 2018, Adams-Meneke Corporation granted 90 million incentive stock options to division managers, each...
On January 1, 2018, Adams-Meneke Corporation granted 90 million
incentive stock options to division managers, each permitting
holders to purchase one share of the company’s $1 par common shares
within the next six years, but not before December 31, 2020 (the
vesting date). The exercise price is the market price of the shares
on the date of grant, currently $20 per share. The fair value of
the options, estimated by an appropriate option pricing model, is
$2 per option. Management’s...
On January 1, 2018, Adams-Meneke Corporation granted 15 million incentive stock options to division managers, each...
On January 1, 2018, Adams-Meneke Corporation granted 15 million
incentive stock options to division managers, each permitting
holders to purchase one share of the company’s $1 par common shares
within the next six years, but not before December 31, 2020 (the
vesting date). The exercise price is the market price of the shares
on the date of grant, currently $50 per share. The fair value of
the options, estimated by an appropriate option pricing model, is
$5 per option. Management’s...
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...
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...
Under its executive stock option plan, M Corporation granted options on January 1, 2018, that permit...
Under its executive stock option plan, M Corporation granted
options on January 1, 2018, that permit executives to purchase 15
million of the company's $1 par common shares within the next eight
years, but not before December 31, 2020 (the vesting date). The
exercise price is the market price of the shares on the date of
grant, $18 per share. The fair value of the options, estimated by
an appropriate option pricing model, is $4 per option. No
forfeitures were...
Under its executive stock option plan, Q Corporation granted options on January 1, 2018, that permit...
Under its executive stock option plan, Q Corporation granted
options on January 1, 2018, that permit executives to purchase 15
million of the company's $1 par common shares within the next eight
years, but not before December 31, 2020 (the vesting date). The
exercise price is the market price of the shares on the date of
grant, $18 per share. The fair value of the options, estimated by
an appropriate option pricing model, is $4 per option. No
forfeitures were...
part a Under its executive stock option plan, N Corporation granted options on January 1, 2018,...
part a
Under its executive stock option plan, N Corporation granted
options on January 1, 2018, that permit executives to purchase 15
million of the company's $1 par common shares within the next eight
years, but not before December 31, 2020 (the vesting date). The
exercise price is the market price of the shares on the date of
grant, $18 per share. The fair value of the options, estimated by
an appropriate option pricing model, is $4 per option. No...
On January 1, 2018, Cullumber Inc. granted stock options to officers and key employees for the...
On January 1, 2018, Cullumber Inc. granted stock options to
officers and key employees for the purchase of 20,000 shares of the
company’s $10 par common stock at $27 per share. The options were
exercisable within a 5-year period beginning January 1, 2020, by
grantees still in the employ of the company, and expiring December
31, 2024. The service period for this award is 2 years. Assume that
the fair value option-pricing model determines total compensation
expense to be $323,200....
On January 1, 2018 Martinez Inc. granted stock options to officers and key employees for the...
On
January 1, 2018 Martinez Inc. granted stock options to officers and
key employees for the purchase of 19000 shares of the company's $10
par common stock at $25 per share. The options were exercisable
within a 5 year period beginning January 1, 2020 by grantees still
in the employ of the company, and expiring December 31, 2024. The
service period for this awards is 2 years. Assume that the fair
value option pricing model determines total compensation expense to...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Discuss the difference between a)FAT, FAT32, NTFS, CDFS, etc., b)What make them diferent and why they...
- 2. Given the Instruction sets for Machine-1, Machine-2 and Machine-3, write programs to calculate: P= ((B×C)...
- Problem III. Suppose that, in a market of a certain good, there are firms that are...
- discusses the difference between public relations and advertising. Cite an organization or individual and give one...
- Draw a sketch for the Hydrogen (discrete) spectrum, labeling the lines according to their respective quantum...
- Create a program/function using PYTHON that takes cents and returns to the customer how MANY coins...
- You have been asked to design an elevator system. The functions of an elevator includes moving...
ADVERTISEMENT