Kick the Bucket Co. issued 30,000 at-the-money stock options to its management on January 1, 2025. These options vest on January 1, 2028. Kick The Budget's share price was $12 on the grant date and $18 on the vesting date. Estimates of the fair value of these options showed that they were worth $2 on the grant date a $7 on the vesting date. On the vesting date, management exercised all 30,000 options. Kick the Budget has a

Kick the Bucket Co. issued 30,000 at-the-money stock options to its management on January 1, 2025. These options vest on January 1, 2028. Kick The Budget's share price was $12 on the grant date and $18 on the vesting date. Estimates of the fair value of these options showed that they were worth $2 on the grant date a $7 on the vesting date. On the vesting date, management exercised all 30,000 options. Kick the Budget has a

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

jThe treasurer of Miller Co. has readnon the Internet that the stock price ofWade Inc. is about to take oﬀ . In order to profit from this potentialdevelopment, Miller Co. purchased a call option on Wade common shareson July 7, 2020, for $400. The call option is for 250shares (notional value),and the strike price is $50. (The market price of a share of Wade stock onthat date is $50.) The option expires on January 31, 2021. The followingdata are available with respect to the call option.Date Market Price of Wade Shares Time Value ofCallSeptember 30, 2020 $55 per share$100December 31, 2020 45 per share40January 4, 2021 47 per share33InstructionsPrepare the journal entries for Miller Co. for the following dates.a. July 7, 2020—Investment in call option on Wade shares.b. September 30, 2020—Miller prepares financial statements.c. December 31, 2020—Miller prepares financial statements.d. January 4, 2021—Miller settles the call option on the Wade shares.
Hua Xin Services offered an incentive stock option plan to its employees. On January 1, 2024, options were granted for 90,000 $1 par common shares. The exercise price equals the $5 market price of the common stock on the grant date. The options cannot be exercised before January 1, 2027, and expire December 31, 2028. Each option has a fair value of $1 based on an option pricing model. What is the total compensation cost for this plan?
E-On January 1, 2020, Orr Co. established a stock appreciation rights plan for its executives. They could receive cash at any time during the next four years equal to the difference between the market price of the common stock and a preestablished price of $16 on 600,000 SARs. The market price is as follows: 12/31/20—$21; 12/31/21—$18; 12/31/22—$19; 12/31/23—$23. On December 31, 2022, 95,000 SARs are exercised, and the remaining SARs are exercised on December 31, 2023. Instructions (a) Prepare a schedule that shows the amount of compensation expense for each of the four years starting with 2020. (b) Prepare the journal entry at 12/31/21 to record compensation expense. (c) Prepare the journal entry at 12/31/23 to record the exercise of the remaining SARs
Options were granted on January 1, 2023by Paltel Co. to purchase 15,000 common shares at an exercise price of $22. The average market price of Paltel's common stock during 2023 was $30 per share. Calculate the incremental shares (denominator) for these options on December 31, 2023.
On August 15, 2019, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of the call option is 400 shares, and the option price is $40. The option expires on January 31, 2020. The following data are available with respect to the call option. Date Market Price of Counting Crows Shares Time Value of Call Option September 30, 2019 $48 per share $180 December 31, 2019 46 per share 65 January 15, 2020 47 per share 30 Instructions Prepare the journal entries for Outkast for the following dates. a. Investment in call option on Counting Crows shares on August 15, 2019. b. September 30, 2019—Outkast prepares financial statements. c. December 31, 2019—Outkast prepares financial statements. d. January 15, 2020—Outkast settles the call option on the Counting Crows shares.
Walters Audio Visual, Inc. offers a stock option plan to its regional managers. On January 1, 2018, 40 millionoptions were granted for 40 million $1 par common shares. The exercise price is the market price on the grantdate, $8 per share. Options cannot be exercised prior to January 1, 2020, and expire December 31, 2024. The fairvalue of the options, estimated by an appropriate option pricing model, is $2 per option. Because the plan doesnot qualify as an incentive plan, Walters will receive a tax deduction upon exercise of the options equal to theexcess of the market price at exercise over the exercise price. The income tax rate is 40%.Required:1. Determine the total compensation cost pertaining to the stock option plan.2. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31,2018.3. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31,2019.4. Record the exercise of the options and…
Q. M Company issued 99,000 stock options to key executives on January 1, 2021. The options must be exercised by December 31, 2023, and will expire on January 1, 2027. Each option entitles the holder to one share of $1 par ordinary stock for $12. On the date of award, an option-pricing model estimates the fair value of the options to be $4. What should M deduct as compensation expense in 2021?
Assume we are in July, 2023. In July of 2023, the share prices of company B are $80 per share. You believe they should be $30 per share, and are thus overvalued. December 2023 put options on a strike price of $60 per share are currently valued at $5. Each put contract is based on 100 shares. a.) What is your net dollar profit or loss as a holder of the put contract (based ona contract size of 100 shares) if we arrive at expiry in December and you are wrong and Company B shares are selling for $100? (Show your working in full)
Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2021, options were granted for 72 million $1 par common shares. The exercise price is the market price on the grant date—$8 per share. Options cannot be exercised prior to January 1, 2023, and expire December 31, 2027. The fair value of the 72 million options, estimated by an appropriate option pricing model, is $1 per option. Required: 1. Determine the total compensation cost pertaining to the incentive stock option plan.2. to 5. Prepare the appropriate journal entries to record compensation expense on December 31, 2021 and 2022. Prepare the appropriate journal entry to record the exercise of 75% of the options on March 12, 2023, when the market price is $9 per share and the entry on December 31, 2027, when the remaining options that have vested expire without being exercised.
Big-Funds Ltd. granted stock options to executives in early 2022. The stock options vest over four years and expire after six years. In total, the options allow the purchase of 40,000 shares at $10 per share. Option pricing models indicate that the options have a total fair value of $600,000. Estimates of retention are 80% at the end of 2022 and 75% at the end of 2023. Required: a) Provide the journal entries to be recorded with respect to the options at the end of 2022 and 2023. b) What would the balance be in the equity account for stock options at the end of the forth year if retention remained at 70%? c) Assume that actual retention was 70%, and the options were exercised at the end of the fourth year when the market price of common shares is $25. Provide the entry for exercise. d) Assume that retention was 70% but the options were allowed to lapse after six years when the price of common shares is $4. Provide the entry for the lapse.
At January 1, 2021, the company had issued 40,000 executive stock options permitting executives to buy 40,000 shares of stock for $25. The vesting schedule is 20% the first year, 30% the second year, and 50% the third year (graded-vesting). The fair value of the options is estimated as follows: Vesting Date Amount Vesting Fair Value per Option Dec. 31, 2021 20 % 2$ Dec. 31, 2022 30 % 2$ 8 Dec. 31, 2023 50 % $ 12 What is the compensation expense related to the options to be recorded in 2021? O $48,000. $96,000. O $128,000. O $184,000.
Walters Audio Visual, Inc., offers a stock option plan to its regional managers. On January 1, 2021, 40 million options were granted for 40 million $1 par common shares. The exercise price is the market price on the grant date, $8 per share. Options cannot be exercised prior to January 1, 2023, and expire December 31, 2027. The fair value of the options, estimated by an appropriate option pricing model, is $2 per option. Because the plan does not qualify as an incentive plan, Walters will receive a tax deduction upon exercise of the options equal to the excess of the market price at exercise over the exercise price. The income tax rate is 25%. Required: 1. Determine the total compensation cost pertaining to the stock option plan. 2. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2021.