Question

On January 1, 2018, Pronghorn Property Management Inc. introduced a stock-based compensation plan for its senior executives. The company has a December 31, 2018 year-end and the following events occurred: ● January 1, 2018 – The company issued 324,000 options to senior management executives for the purchase of shares at $11 / share. The fair value of the options using an options pricing model is $2,268,000. Options vest over a three-year period and it is estimated that 90% of the options will vest. At the end of 2021, any unexercised options will expire. ● December 31, 2018 – Management now estimates that 85% of the options will vest. ● December 31, 2019 – Management now estimates that 80% of the options will vest. ● January 1, 2021 – 108,000 options are exercised when the market price is $15 / share. Record the journal entries associated with the above transactions including any necessary entry at December 31, 2021.

On January 1, 2018, Pronghorn Property Management Inc. introduced a stock-based compensation plan for its senior executives. The company has a December 31, 2018 year-end and the following events occurred: • January 1, 2018 - The company issued 324,000 options to senior management executives for the purchase of shares at $11/ share. The fair value of the options using an options pricing model is $2,268,000. Options vest over a three-year period and it is estimated that 90% of the options will vest. At the end of 2021, any unexercised options will expire. December 31, 2018 - Management now estimates that 85% of the options will vest. • December 31, 2019 - Management now estimates that 80% of the options will vest. • January 1, 2021 - 108,000 options are exercised when the market price is $15/share. Record the journal entries associated with the above transactions including any necessary entry at December 31, 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)

Answer 1

Dear Student

Journal in the books
Date	Particulars		Debit	Credit
31-12-2018	Employee Option Compensation Expense A/c		6,80,400
	To Employee Option Compensation Expense Outstanding			6,80,400
	(Being Expense for options recognised as per working)
	Profit and Loss A/c		6,80,400
	To Employee Option Compensation Expense A/c			6,80,400
	(Being expense transferred to statement of profit and loss)
31-12-2019	Employee Option Compensation Expense A/c		6,04,800
	To Employee Option Compensation Expense Outstanding			6,04,800
	(Being Expense for options recognised as per working)
	Profit and Loss A/c		6,04,800
	To Employee Option Compensation Expense A/c			6,04,800
	(Being expense transferred to statement of profit and loss)
31-12-2020	Employee Option Compensation Expense A/c		5,29,200
	To Employee Option Compensation Expense Outstanding			5,29,200
	(Being Expense for options recognised as per working)
	Profit and Loss A/c		5,29,200
	To Employee Option Compensation Expense A/c			5,29,200
	(Being expense transferred to statement of profit and loss)
01-01-2021	Bank A/c (108,000 x 11)		11,88,000
	Employee Option Compensation Expense Outstanding (108,000 x 7)		7,56,000
	To Share Capital A/c (108,000 x 10)			10,80,000
	To Securities Premium A/c (108,000 x 8)			8,64,000
	(Being 108,000 options are excercised , *it has been assumed that face value of a share is $10)
31-12-2021	Employee Option Compensation Expense Outstanding (259,200 - 108,000) x 7)		10,58,400
	To General Reserve			10,58,400
	(Being excess compensation expense outstanding transferred to general reserve as options are not excercised)

WORKING FOR COMPENSATION EXPENSE TO BE RECOGNISED EACH YEAR
PARTICULARS	2,018	2,019	2,020
Number of Options Expected to Vest	2,91,600	2,75,400	2,59,200
(Total Number x Expected Percentage)	(324,000 x 90%)	(324000 x 85%)	(324000 x 80%)
Total Compensation Expense	20,41,200	19,27,800	18,14,400
(Number of options x Fair value per option)	(291,600 x 7)	(2,75,400 x 7)	(259,200 x 7)
Compensation Expense of the Year	6,80,400	12,85,200	18,14,400
(Total Compensation Expense x Year/Total number of year)	(20,41,200 x 1/3)	(19,27,800 x 2/3)	(18,14,400 x 3/3)
Compensation Expense recognised Previously	-	6,80,400	12,85,200
Compensation Expense recognised for the year	6,80,400	6,04,800	5,29,200
(Compensation Expense for Year - Recognised Previously)	(6,80,400 - 0)	(12,85,200 - 6,80,400)	(18,14,400 - 12,85,200)

Note:

1. It has been assumed that at the end of year three i.e year ending Dec 2020 , it is estimated that 80% of the options would be vested therefore for year ending 31-12-2020 expense is recognised as per estimation that 259,200 options would vest.

Regards