Question

On January 1, 2016, Adams-Meneke Corporation granted 60 million incentive stock options to division managers, each...

On January 1, 2016, Adams-Meneke Corporation granted 60 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, 2018 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $44 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. Required: 1. Determine the total compensation cost pertaining to the options on January 1, 2016. (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).) 2. Prepare the appropriate journal entry to record compensation expense on December 31, 2016. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) 3. Unexpected turnover during 2017 caused the forfeiture of 5% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2017 and 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

(1) Total compensation cost =No. of stock options*Fair value of options = 60 million*$5

= $300 million vested over 3 years

(2) Compensation cost(2016) = 300*(1/3)

= $100 million

Following is the required journal entry:

Particulars Debit($) Credit ($)
Compensation expense 100 million
PIC- restricted stock 100 million

(3) New total compensation = total compensation*(100%- forfeiture rate)

= $300 million*(100%-5%) = $285 million

Compensation cost (2017) = 285*(2/3)-100

= $90 million

Compensation cost (2018) = 285*(3/3)-100-90

= $95 million

Following is the required journal entries:

Date Particulars Debit($ in million) Credit ($ in million)
2017 Compensation Expense 90
PIC - Restricted stock 90
2018 compensation expense 95
PIC- restricted stock 95
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1, 2016, Adams-Meneke Corporation granted 60 million incentive stock options to division managers, each...
On January 1, 2016, Adams-Meneke Corporation granted 60 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, 2018 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $36 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. Required:...
On January 1, 2021, Adams-Meneke Corporation granted 120 million incentive stock options to division managers, each...
On January 1, 2021, Adams-Meneke Corporation granted 120 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, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $42 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. Management’s...
On January 1, 2021, Tru Fashions Corporation awarded restricted stock units (RSUs) representing 14 million of...
On January 1, 2021, Tru Fashions Corporation awarded restricted stock units (RSUs) representing 14 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. On the grant date, the shares had a market price of $6.30 per share. Required: 1. Determine the total compensation cost pertaining to the RSUs. 2. Prepare the appropriate journal...
On January 1, 2018, David Mest Communications granted restricted stock units (RSUs) representing 25 million of...
On January 1, 2018, David Mest Communications granted restricted stock units (RSUs) representing 25 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $18 per share on the grant date. At the date of grant, Mest anticipated that 5% of the recipients would leave the firm...
Under its executive stock option plan, National Corporation granted 12 million options on January 1, 2021,...
Under its executive stock option plan, National Corporation granted 12 million options on January 1, 2021, that permit executives to purchase 12 million of the company’s $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $16 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. Suppose...
On January 1, 2021, David Mest Communications granted restricted stock units (RSUs) representing 20 million of...
On January 1, 2021, David Mest Communications granted restricted stock units (RSUs) representing 20 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $15 per share on the grant date. At the date of grant, Mest anticipated that 6% of the recipients would leave the firm...
On January 1, 2021, David Mest Communications granted restricted stock units (RSUs) representing 40 million of...
On January 1, 2021, David Mest Communications granted restricted stock units (RSUs) representing 40 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $15 per share on the grant date. At the date of the grant, Mest anticipated that 6% of the recipients would leave the...
On January 1, 2016, Webber Company granted 77,300 stock options to certain executives. The options are...
On January 1, 2016, Webber Company granted 77,300 stock options to certain executives. The options are exercisable no sooner than December 31, 2018, and expire on January 1, 2022. Each option can be exercised to acquire one share of $3 par common stock for $7. An option-pricing model estimates the fair value of the options to be $3 on the date of grant. If unexpected turnover in 2017 caused the company to estimate that 10% of the options would be...
Under its executive stock option plan, National Corporation granted 29 million options on January 1, 2021,...
Under its executive stock option plan, National Corporation granted 29 million options on January 1, 2021, that permit executives to purchase 29 million of the company’s $1 par common shares within the next eight years, but not before December 31, 2025 (the vesting date). The exercise price is the market price of the shares on the date of grant, $33 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. No...
The Burford Corporation provides an executive stock option plan. Under the plan, the company granted options...
The Burford Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2016, that permit executives to acquire 12 million of the company's $1 par value common shares within the next five years, but not before December 31, 2019 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $14 per share. The fair value of the options, estimated by an appropriate model, is...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT