Under its executive stock option plan, National Corporation granted 15 million options on January 1, 2021, that permit executives to purchase 15 million of the company’s $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $17 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. Suppose that unexpected turnover during 2022 caused the forfeiture of 5% of the stock options.
Compute the amount of compensation expense for 2022 and 2023
An employee stock ownership plan (ESOP) is a type of employee benefit plan which is intended to encourage employees to acquire stocks or ownership in the company.
ESOP's encourage employees to give their all as the company's success translates into financial rewards.
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- Now assume that the market price of Amazon stock on the grant date was $47 per share. Prepare the journal entries for the first year of the plan assuming that, rather than options, 710 shares of restricted stock were granted at the beginning of 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit >arrow_forwardBells, Inc.'s board authorized 150,000 stock options for the company's design team. The options can only be used to purchase shares of Bells, Inc's common stock for $9 per share and will vest in 3 years. Assuming that the options were authorized on January 1st of 2023, that the fair value of the options is $6, and that the company's tax rate is 20%, what will the amount of the net tax effect of these options in 2023? (NIE 15)$300,000$120,000$180,000$60,000arrow_forwardTrafford Company is a calendar-year U.S. firm with operations in several countries. At January 1, 2024, the company had issued 44,000 executive stock options permitting executives to buy 44,000 shares of stock for $25. The vesting schedule is 20% the first year, 30% the second year, and 50% the third year (graded-vesting). Trafford does not choose to account for the options on a straight-line basis. The fair value of the options is estimated as follows: Vesting Date Amount Vesting Fair Value per Option Issued Executive Stock 31-Dec-24 20% $5 $7 44,000 shares 40,000 31-Dec-25 30% $10 $8 Permitting Execuutive to buy shares of Stock 31-Dec-26 50% $15 $12 44,000 shares at $25 40,000 What is the compensation expense related to the options to be recorded in 2025?…arrow_forward
- On January 1, 2020, 50 executives were given a performance-based share option plan that would award them with a maximum of 300 shares of $10 par common stock for $20 a share. On the grant date, the fair value of an option was $16.50. The number of options that will vest depends on the size of the annual average increase in sales over the next three years according to the following table: Annual Average Increase in Sales No. of Shares Greater than 5% 50 Greater than 10% 150 Greater than 15% 300 On the grant date, the company estimates the annual average sales increase will be 14%. Refer to Exhibit 15-6. The estimated total compensation cost will be a. $123,750. b. $27,500. c. $55,000. d. $247,500.arrow_forwardPastore Incorporated granted options for 1 million shares of its $1 par common stock at the beginning of the current year. The exercise price is $31 per share, which was also the market value of the stock on the grant date. The fair value of the options was estimated at $9.00 per option. What would be the total compensation indicated by these options?arrow_forwardWalters 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%. 4. Record the exercise of the options and their tax effect if all of the options are exercised on March 20, 2026, when the market price is $12 per share.5. Assume the option plan qualifies as an incentive plan. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2021.6. Assuming the option…arrow_forward
- On January 1, 2021, M Company granted 95,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2023, and expire on January 1, 2027. Each option can be exercised to acquire one share of $1 par common stock for $13. An option-pricing model estimates the fair value of the options to be $4 on the date of grant. What amount should M recognize as compensation expense for 2021? (Round your answer to the nearest dollar amount.)arrow_forwardModern Corporation granted 95,000 stock options to certain executives on January 1, 2022. The options are exercisable no sooner than December 31, 2024, and expire on January 1, 2028. Each option can be exercised to acquire one share of $1 par common stock for $11. An option-pricing model estimates the fair value of the options to be $5 on the date of grant. How much compensation expense should Modern recognize in 2022 as a result of this stock option grant?arrow_forwardOrange Inc. issued 20,000 nonqualified stock options valued at $20,000 (in total). The options vest over two years-half in 2019 (the year of issue) and half in 2020. One thousand options are exercised in 2020 with a bargain element on each option of $6. What is the 2020 book-tax difference associated with the stock options? Part I: A) $15,000 favorable B) $ 6,000 favorable C) $15,000 unfavorable D) $ 4,000 unfavorable Part II: What is the permanent difference related to this exercise of 1,000 option?arrow_forward
- Can you help me with step by step explanation, please? Thank you :)arrow_forwardqw.128. On January 1, 2021, Adams-Meneke Corporation granted 60 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, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $16 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. Management’s 1.) Total Compensation Cost 2.) Record compensation expense on December 31, 2021. 3.) Record the compensation expense.arrow_forwardUnion Pacific Corp uses stock options as a major compensation incentive for its top executives. On January 1, 2021, 23 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date – $30 per share ($120 per option). Options vest on January 1, 2025. They cannot be exercised before that date and will expire on December 31, 2027. The fair value of the 23 million options, estimated by an appropriate option pricing model, is $43 per option. Ignore income tax. Union Pacific Corp's compensation expense in 2021 for these stock options was: (Round your answer to nearest whole dollar amount.) Multiple Choice $247 million. $989 million. $494 million. $0.arrow_forward
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