Connect CSecure https//newconnect.mheducation.com/flow/connect.html Ch. 19 - Bri

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Connect CSecure https//newconnect.mheducation.com/flow/connect.html Ch. 19 - Brief Exercises (80 minutes) Help Save & Exlt Submlt Saved 3 Check my work 6 Brief Exercise 19-6 Stock options; exercise [LO19-2] Under its executive stock option plan, National Corporation granted 20 million options on January 1, 2018, that permit executives to purchase 20 million of the company's $1 par common shares within the next seven years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, $24 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. Suppose that the options are exercised on April 3 2021, when the market price is $29 per share 6.25 points eBook gnoring taxes, what journal entry will National record? (If no entry is required for a transaction/event, select "No journal entry References required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) View transaction list Journal entry worksheet Record entry for options exercised on April 3, 2021, when the market price is $29 per share Mc Graw Hill ?Prey 60r 16? Next> ???@) a e ^??4, 4/17/2018 8:33 PM |

Explanation / Answer

1) Total Compensation Expense = Options granted*Fair Value per option

= 20 million*$3 per option = $60 million

The total compensation expense of $60 million will be recognized over the three years (i.e. $60 million/3 yrs = $20 million each year). The required journal entries are shown as follows:-

Journal Entries (Amounts in million $)

The market price of shares of $29 on the april 3, 2021 is not relevant.   

Date Account Titles and Explanations Debit Credit 12/31/2018 Compensation Expense 20 Paid in Capital-Stock Options 20 (To record the compensation expense) 12/31/2019 Compensation Expense 20 Paid in Capital-Stock Options 20 (To record the compensation expense) 12/31/2020 Compensation Expense 20 Paid in Capital-Stock Options 20 (To record the compensation expense) 04/03/2021 Cash (20 million options*$24 exercise price) 480 Paid in Capital-Stock Options 60 Common Stock (20 million shares*$1 par) 20 Paid in Capital-in excess of par (bal. fig) (480+60-20) 520 (To record the exercise of options)

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