7. Under its executive stock option plan. Choco Corporation granted options on J

Question

7. Under its executive stock option plan. Choco Corporation granted options on January 1. 2013, that permit executives to purchase 10 million of the company's $1 par common shares within the next ten years, but not before December 31, 2016 (the vesting date). The exercise price is the market price of the shares on the date of grant, $10 per share. The fair value of the options, estimated by an appropriate option pricing model, is $7 per option. No forfeitures are anticipated. The options are exercised on April 2, 2017, when the market price is $21 per share. By what amount will Choco's shareholder's equity be increased when the options are exercised? (hint: think about the journal entry on April 2, 2017) A. $70 million. B. $100 million. C. $170 million. D. $10 million.

Explanation / Answer

Answer: B. 100million.

Option is to buy at market price on the date of grant. and on the date of grant market price was $10.

So total capital will increase by $10 x 10million = $100million

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