On October 15, 2020, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2021, 18 million stock options were granted, exercisable for 18 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2024, and December 31, 2026, at 80% of the quoted market price on January 1, 2021, which was $15. The fair value of the 18 million options, estimated by an appropriate option pricing model, is $6 per option. Ensor chooses the option to recognize forfeltures only when they occur. Ten percent (1.8 million) of the options were forfelted when an executive resigned in 2022. All other options were exercised on July 12, 2025, when the stock's price Jumped unexpectedly to $37 per share. Required: 1. When Is Ensor's stock option measurement date? 2. Determine the compensation expense for the stock option plan in 2021. (Ignore taxes.) 3. Prepare the journal entries to reflect the effect of forfelture of the stock options on Ensor's financial statements for 2022 and 2023. 5. Prepare the journal entry to account for the exercise of the options in 2025.

On October 15, 2020, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2021, 18 million stock options were granted, exercisable for 18 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2024, and December 31, 2026, at 80% of the quoted market price on January 1, 2021, which was $15. The fair value of the 18 million options, estimated by an appropriate option pricing model, is $6 per option. Ensor chooses the option to recognize forfeltures only when they occur. Ten percent (1.8 million) of the options were forfelted when an executive resigned in 2022. All other options were exercised on July 12, 2025, when the stock's price Jumped unexpectedly to $37 per share. Required: 1. When Is Ensor's stock option measurement date? 2. Determine the compensation expense for the stock option plan in 2021. (Ignore taxes.) 3. Prepare the journal entries to reflect the effect of forfelture of the stock options on Ensor's financial statements for 2022 and 2023. 5. Prepare the journal entry to account for the exercise of the options in 2025.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

Section: Chapter Questions

Problem 23P

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On October 15, 2020, the board of directors of Ensor Materials Corporation approved a share option plan for key executives. On January 1, 2021, 20 million share options were granted, exer- cisable for 20 million shares of Ensor's $1 par ordinary share. The options are exercisable between January 1, 2024, and December 31, 2026, at 80% of the quoted market price on January 1, 2021, which was $15. The fair value of the 20 million options, estimated by an appropriate option pricing model, is $6 per option. Two million options were forfeited when an executive resigned in 2022. All other options were exercised on July 12, 2025, when the share's price jumped unexpectedly to $19 per share. Required: 1. When is Ensor's share option measurement date? 2. Determine the compensation expense for the share option plan in 2021. (Ignore taxes.) 3. What is the effect of forfeiture of the share options on Ensor's financial statements for 2022 and 2023? 4. Is this effect consistent with the general…
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