Question

lantary 5, 2022, 3 executives exercise their options Required: Prepare a memorandum entry on the grant date and journal entries for 2019 through 2022 in Card compensatory share option plan (round all calculations to the nearest whole number). Fixed Share Option Compensation Plan On January 1, 2019. Pepin Company adopts a compensatory option plan for its 50 executive Ves, the plan allows each executive to purchase 200 shares of its $2 par common stock for $30 per share after completing a 3-year service period. Pepin estimates the value of each op S on the grant date, and the company expects that 15% of the options will be forfeited and uses this area compensation cost calculations in 2019. At the end of 2021. Pepin determined that the actua yes for the entire service period. On January 6, 2022, 8 executives exci option 10 15.5 Required: & 10 15.5 Prepare a schedule of Pepin's compensation of tepm's compensation computations for its compensatory share option plan for 2012 through 2021 (round all computations to the nearest dollar). Prepare reps memorandum entry on the grant date and journal entries for 2017 this plan. Performance-Based Share Option Plan On January 1, 2019. Rhine Company adopts a performance option plan for its 80 key execu key executives. Each executive is granted a maximum of 70 share options, but the number of options that vest depends on the percentage increase in Rhine's sales over a 3-year service period. It by Decemo 31. 2021, sales have increased by at least 10%, 50 options will vest for each executive; if sales have increased least 15%, all 70 options will vest. On the grant date, Rhine estimates that its sales will increase by 12% over the service period, and that its employee turnover rate over the 3-vear service period will be 6%. It also determines that (continued)

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Answer 1

Part 1: Calculation of Compensation Expenses

Particulars	2019	2020	2021
Total number of Employees	80	80	80
Shares per Employee	70	70	70
Number of Employees expected to complete vesting period#1	=$ 80*0.94 = $ 75.2	=$ 80*0.94*0.94 = $ 70.69	=$ 80*0.94*0.94*0.94 = $ 66.45
Number of Shares expected to vast to each employee#2	50	50	50
Total shares expected to vast	3,760	3,535	3,323
Fair value of each option	13.40	13.40	13.40
Total Compensation expense	=$ 3,760*13.40 = $ 50384	=$ 3,535*13.40 = $ 47369	=$ 3,323*13.40 = $ 44,528
Expected Vesting Period	3 Years	3 Years	3 Years
Cumulative Expenditure to be recorded till the year	$ 50,384*1/3 = $ 16795	$ 47,369*2/3 = $ 31,579	$ 44,528*3/3 = $ 47,528
Expenditure up to last year	0	$ 50,384*1/3 = $ 16,795	$ 47,369*2/3 = $ 31,579
Expenditure to be recorded for the current year	$ 16,795	$ 14,784	$ 12,949

#1: Since the annual turnover expected at 6%, only the employees will be eligible for vesting of the option at the end of FY2021, that are still employed with the company.

#2: Since the expected increase in the sales is expected at 12% over the vesting period, the employees shall be eligible for 50 shares each. (In spite of being granted 70 each on the grant date)

Part 2: Journal Entry for the FY2019

Employee Compensation Expenses A/c Dr.	$ 16,795
To Employee Share Option Plan Outstanding A/c	$ 16,795
Profit and Loss A/c Dr.	$ 16,795
Employee Compensation Expenses A/c	$ 16,795