Question

On January 1, 2018, Adams-Meneke Corporation granted 45 million incentive stock options to division managers, each permittingRequired 1 Required 2 Required 3 Prepare the appropriate journal entry to record compensation expense on December 31, 2018. (Journal entry worksheet < 1 2 Record the compensation expense. Note: Enter debits before credits. General Journal Debit Credi

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Answer #1

Required 1)

Total compensation cost $270 million

Explanation:-

Total compensation cost pertaining to the options = Total stock options granted × estimated fair value per option
Total compensation cost pertaining to the options = 45 million × $6 = $270 million

Required 2) ($ in million)

No. Date General Journal Debit Credit
1 December 31, 2018 Compensation expense ($270 million ÷ 3) $90  
Paid-in-capital- stock options $90  
(Being compensation expense recorded)

Required 3)    ($ in million)

Date General Journal Debit Credit
December 31,2019 compensation expense ($270 ×95% ×2/3) - $90 = $81
Paid-in-capital- stock options $81
(Being compensation expense recorded)
December 31,2020 compensation expense ($270 ×95% ×3/3) -$90 -$81 = $85.5
Paid-in-capital-stock options $85.5
(Being compensation expense recorded)
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