Under its executive stock option plan, Jonas Corporation granted options on Janu

Question

Under its executive stock option plan, Jonas Corporation granted options on January 1,2016, that permit executives to purchase 300.000 shares of the company's $1 par common shares within the next eight 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, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. 1. What total amount of compensation expense does Jonas Corporation expect to recognize with respect to these options? 2. What amount of compensation expense will be recognized in 2016 with respect to these options? 3. Assume that all of the option equity change as a result of recording this transaction? s are exercised on 1/1/2019 when the market price of the common stock is $25 per share. By how much will

Explanation / Answer

            $4                       fair value per option
       x 300,000               options granted
       = 1,200,000            fair value of award

The $1,200,000 total compensation is expensed equally over the three-year vesting period, reducing earnings by $400,000 each year.

                                                                                                                     ($ in 000’s)

Cash ($18 exercise price x 300,000 shares)........................ 5,400
Paid-in capital - stock options (account balance)........... 1,200
    Common stock (300,000 shares at $1 par per share)......              300
    Paid-in capital – excess of par (remainder)...................              6,300

Ans 1 $1,200,000

Ans 2 $400,000

Ans 3 (6,300,000+300,000) = 6,600,000

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