Chap 19 part 1 Stock based compensation Under its executive stock option plan, N

Question

Chap 19 part 1 Stock based compensation

Under its executive stock option plan, National Corporation granted options on January 1, 2016, that permit executives to purchase 16 million of the company’s $1 par common shares within the next seven 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, $20 per share. The fair value of the options, estimated by an appropriate option pricing model, is $2 per option. Suppose that the options are exercised on April 3, 2019, when the market price is $24 per share.

Ignoring taxes, what journal entry will National record? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

1. Record entry for options exercised on April 3, 2019, when the market price is $24 per share.

Ignoring taxes, what journal entry will National record? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

1. Record entry for options exercised on April 3, 2019, when the market price is $24 per share.

Explanation / Answer

Total compensation exp Estimated fair value 2 options granted 16 million Total compensation 32 The total compensation is allocated to expense over the 4-year service =32/4 8 Journal Debit Credit Compensation expenses 8 paid in capital-stock options 8 When option exercised: cash(20*8) 160 paid in capital -stock options 16 common stock 8 paid in capital -inexcess of par 168

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