On October 15, 2015, the board of directors of Ensor Materials Corporation appro

Question

On October 15, 2015, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2016, 18 million stock options were granted, exercisable for 18 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2019, and December 31, 2021, at 80% of the quoted market price on January 1, 2016, which was $15. The fair value of the 18 million options, estimated by an appropriate option pricing model, is $6 per option.

     1.8 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 $37 per share.

Determine the compensation expense for the stock option plan in 2016. (Ignore taxes.) (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).)

Prepare the necessary journal entries.

On October 15, 2015, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2016, 18 million stock options were granted, exercisable for 18 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2019, and December 31, 2021, at 80% of the quoted market price on January 1, 2016, which was $15. The fair value of the 18 million options, estimated by an appropriate option pricing model, is $6 per option.

     1.8 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 $37 per share.

Explanation / Answer

1) As per companies Act (Amended), 2013 (India) :-

Stock option measurement date is the date when Board of directors approve and pass the resolution for issuance to share, so as per the mentioned statement stock option measurement date is October 15, 2015.

2) Rate offered for quoting = 15*80% = 12 $

Fair market price = 18$

Compensation expense = (18-12) = 6 $ per share

Share with key executives = 18-1.8 = 16.2 millions shares

Total compensation expense = 16.2*6

= $ 97.2 millions

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