CTE granted executive stock options on January 1, 2018, that permit executives t
ID: 2432135 • Letter: C
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 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
Explanation / Answer
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)