Problem 19-1 Stock options:; forfeiture; exercise [L019-2] O Outober 18 2018 the
ID: 2555727 • Letter: P
Question
Problem 19-1 Stock options:; forfeiture; exercise [L019-2] O Outober 18 2018 the board of directors of Ensor Materials Corporation approved a slook option plan for key exeoutives On January 1, 2018 38 millon slook options were granted, exeroisable for 38 million shares of Eors $t par common slook. The options are exeroisable belween January 1, 2019, and ?nter 31, 2021 . a. 80% of the quoted market price on January 1, 2016, which was $10 The fair value of the 38 milion options estimated by an appropriate opton pricing model, is $3 per option 3 8 millon options were forfeited when an executive resigned in 2017, Al other options were exeroised July 12, 2000, when the stook s price umped unexpectedly to $30 per share t When is Ensors skock option measurement date? OJanuary 1, 2019 O January 1, 2018 December 31, 202 October 15,2018 2. Determine the compensation expense for the stock option plan in 2018. (ignore taxes.) (Enter your answer in millions (Le 10,000,000 should be entered as 10) 3. & 5 Prepare the necessary jounal entries. f no entry is required for a transaction/event, select "No journal entry required in the first account field, Enter your answers in mililions rounded to t decimal place (.?., 5,500,000 should be entered as 5.5).) Journal entry worksheet esc F) F2 F3 Fs 17 2Explanation / Answer
Solution: 1. Answer is 2nd option January 1, 2016 Notes: Ensor's stock option measurement date is January 1, 2016 , is the granted date of the option. 2. Compensation expense $38 million Working Notes: Compensation expense for 2016 = No. of shares x Fair value per share x (period expired/total period of option) = 38 million x $3 x ( 1 / 3 ) =$38 million 3. Date General Journal Debit Credit Dec. 31, 2017 Compensation expense 30.4 Paid-in capital—stock options 30.4 Working Notes: Compensation expense for 2017 = No. of shares x Fair value per share x 90% x (period expired/total period of option) - Already recognized earlier = 38 million x $3 x 90% x ( 2/ 3 ) - $38 =$30.4 million Date General Journal Debit Credit Dec. 31, 2018 Compensation expense 34.2 Paid-in capital—stock options 34.2 Working Notes: Compensation expense for 2018 = No. of shares x Fair value per share x 80% x (period expired/total period of option) - Already recognized earlier = 38 million x $3 x 90% x ( 3/ 3 ) - $38 - $30.4 =$102.6 - 68.4 =34.2 Date General Journal Debit Credit 2020 Cash 273.6 Paid-in capital—stock options 102.6 Common stock 34.2 Paid-in capital—excess of par 342 Working Notes: Cash 273.6 [38 x 0.90 x 0.80 x10] Paid-in capital—stock options 102.6 Common stock 34.2 [38 x 0.90 x 1] Paid-in capital—excess of par 342 [273.6+102.6 -34.2] (balancing figure) Please feel free to ask if anything about above solution in comment section of the question.