Question

CTE granted executive stock options on January 1, 2018, that permit executives to purchase 20 million...

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 15th 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

Homework Answers

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)
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