Question

CTE granted executive stock options on January 1, 2018, that permit executives to purchase 20 million of the company’s $1 par common shares within the next 8 years, but not before December 31, 2021 (vesting date). The exercise price is the market price of the shares on the date of grant, which is $11 per share. The Fair value of options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. Half of the options are exercised on April 15^th 2022, when the market price is $25 per share.

By what amount will CTE’s paid in capital- excess of par be increased by on date of exercise?

140 million

280 million

160 million

100 million

Answer 1

Ans is A	140 Million
Explanation
	Total compensation expenses	20 M x $4	=80M
	On exercise following entry to be recorded
	Cash (10,000,000 X $11)	$      110,000,000
	Paid-in Capital—Stock Options	$        40,000,000
	($80M X 1/2)
	Common Stock (10 M X $1)		$        10,000,000
	Paid-in Capital in Excess of Par		$      140,000,000
	(To record issuance of 10M
	shares of $1 par value stock
	upon exercise of options at
	option price of $11)