ACC CH19 On October 15, 2015, the board of directors of Ensor Materials Corporat

ID: 2569836 • Letter: A

Question

ACC CH19

On October 15, 2015, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2016, 25 million stock options were granted, exercisable for 25 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2019, and December 31, 2021, at 90% of the quoted market price on January 1, 2016, which was $20. The fair value of the 25 million options, estimated by an appropriate option pricing model, is $6 per option.

2.5 million options were forfeited when an executive resigned in 2017. All other options were exercised on July 12, 2020, when the stock's price jumped unexpectedly to $24 per share.

Solve JE:

Record the exercise of the options in 2020.

Note: Enter debits before credits.

2.5 million options were forfeited when an executive resigned in 2017. All other options were exercised on July 12, 2020, when the stock's price jumped unexpectedly to $24 per share.

Solve JE:

Record the exercise of the options in 2020.

Note: Enter debits before credits.

Date General Journal Debit Credit 2020 Cash Paid-in capital—stock options Common stock Paid-in capital—excess of par

Explanation / Answer

Amount received from Key executives (No of options*exercise price) = 22.5 million * (20*90%) = $ 405 million

Amount expensed during 2016-2018 (No of options*fair value of option) = 22.5 million * 6 =$ 135 million

Common stock (No of options*par value) = 22.5 million * 1 = $ 22.5 million

Paidin capital- excess of par (No of options*amount excess of parvalue) = 22.5 million * 23 = $517.5 million

Date

General Journal

Debit($ millions)

Credit($ millions)

12-Jul-20

Cash

405

Paid-in capital—stock options

135

Common stock

22.5

Paid-in capital—excess of par

517.5