American Optical Corporation provides a variety of share-based compensation plan

Question

American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2016, that permit executives to acquire 11 million of the company’s $1 par common shares within the next five years, but not before December 31, 2017 (the vesting date). The exercise price is the market price of the shares on the date of grant, $52.0 per share. The fair value of the 11 million options, estimated by an appropriate option pricing model, is $12 per option. No forfeitures are anticipated. Ignore taxes.

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American Optical Corporation provides a variety of share-based compensation plans to its employees executives to acquire 11 million of the company's $1 par common shares within the next five years, but not before December 31, 2017 (the vesting date). The exercise price is the market price of the shares on the date of grant, $52.0 per share. The fair value of the 11 million options, estimated by an appropriate option pricing model, is $12 per option. No forfeitures are anticipated. Ignore taxes. Required: 1. Determine the total compensation cost pertaining to the options. (Enter your answer in millions (i.e. 10,000,000 should be entered as 10).) Total compensation cost million 2. to 4. Prepare the appropriate journal entries. (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).)

Explanation / Answer

1. Determination the total compensation cost pertaining to option Particulars Amount Fair value of the option (a) 12 No. of options (b) 11 Total compensation (a*b) 132 2. Journal entries Particulars Debit Credit January 1, 2016 No Entry to be passed December 31, 2016 Employees compensation expenses                         66 To employee stock reserve / Option outstanding reserve                         66 ( Being expense for the fisrt year recorded) December 31, 2016 Employees compensation expenses                         66 To employee stock reserve / Option outstanding reserve                         66 ( Being expense for the fisrt year recorded) Explanations:- 1 No Entry need to be passed at the time of grant of the option as on 1 Jaunary 2016. 2 Expense relation to employee compensation is amortise over the vesting period.

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