On January 1, 2016, Adams-Meneke Corporation granted 25 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 $10 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. Required: 1. Determine the total compensation cost pertaining to the options on January 1, 2016. 2. Prepare the appropriate journal entry to record compensation expense on December 31, 2016. 3. Unexpected turnover during 2017 caused the forfeiture of 6% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2017 and 2018.
On January 1, 2016, Adams-Meneke Corporation granted 25 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 $10 per share. The fair value of the options, estimated by an appropriate option pricing
model, is $3 per option.
Required:
1. Determine the total compensation cost pertaining to the options on January 1, 2016.
2. Prepare the appropriate
3. Unexpected turnover during 2017 caused the forfeiture of 6% of the stock options. Determine the adjusted
compensation cost, and prepare the appropriate journal entry(s) on December 31, 2017 and 2018.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
