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Current Attempt In Progress On January 1, 2019. Sheffield Corporation granted 10.200 options to key executives. Each option a
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Answer #1
Options expected to vest = 10,200
Stock option compensation cost = Fair value of option at grant
Stock option compensation cost = $375,000
Vesting period = 2years
Service period completed = 1 year
Cumulative expense at end of year 1 = Total cost x Service period / Vesting period
Cumulative expense at end of year 1 = $375,000 * 1/2 = $187,500
Previously recognized expense = 0
Stock option compensation expense for year 1 =$187,500
SINCE THERE IS NO CHANGE IN ESTIMATES, BOTH THE YEARS $187,500 WOULD BE RECORDED.
Jan-19 NO ENTRY
31-12-20 Stock option expense journal entry – Year 1
PARTICULARS Debit Credit
Stock option compensation expense $187,500
Stock options $187,500
31-12-20 Stock option expense write off– Year 1
PARTICULARS Debit Credit
Income account $187,500
Stock option compensation expense $187,500
31-12-21 Stock option expense journal entry – Year 2
PARTICULARS Debit Credit
Stock option compensation expense $187,500
Stock options $187,500
31-12-21 Stock option expense write off– Year 2
PARTICULARS Debit Credit
Income account $187,500
Stock option compensation expense $187,500
Number of options exercised = 8160
Exercise price / share = $19.00
Par value of share = $5.00
Amount paid for shares = 8,160 * 19 = $155,040
PARTICULARS Debit Credit
Stock options $        89,760
Cash $     155,040
Common stock $        40,800
Securities premium $     204,000
$     244,800 $     244,800
Securities premium = 8160*(30-5) = $204,000
Stock Options = 8160 * (30-19) = $ 89,760
Number of options lapsed = 10,200-8,160 = 2040
Expense reversed for those options
31-12-23 Stock option expense journal entry – Year 4
PARTICULARS Debit Credit
Stock options $285,240
Income account $                         285,240
(375000-89760)
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