Question

On January 1, 2016, sixty executives are offered a fixed compensatory stock option plan in which...

On January 1, 2016, sixty executives are offered a fixed compensatory stock option plan in which each of them will receive options to buy 5,000 shares of $10 par common stock at $30 a share. On the grant date, the fair value per option is $7.50. There is a three-year service period and an estimated annual employee turnover rate of 3%.

Required:

a.       Compute the expected total compensation cost.

  1. Compute the compensation expense for 2016.
  2. Prepare the journal entry to record the exercise of options by six of the executives on January 1, 2019.
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Homework Answers

Answer #1

a. Expected total compensation cost = 60 * 7.5 * 5000 * 97% * 97% * 97% = 2,053,514

b. Compensation expense for 2016 = 2,053,514 / 3= 684,505

c.

Date Account Titles Debit Credit
Jan 1, 2019 Cash
[6*30*5000]		 900000
Common stock option warrants
[2053514*6/60]		    205,351
Common stock
[6*5000*10]		 300000
Additional paid in capital on common stock                               805,351
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