Question

Question 2 Chapter 15 Assignment On January 1, 2021, Braeben Inc, granted stock option within a five-year period beginning Janua and they expire December 31, 2027. The m at the date of grant. Using the Black-Scholes option prica of each option on January 1, 2021 to be $2.75. of 180,000 of the compare of the company's no-par value common shares at $30 each. The options ne granted stock options to officers and key employees for the purchase year period beginning January 1, 2023 by grantees still in the employ of the company. on shares at $30 each. The options were exercisable recember 31, 2027. The market price of Braeben's common share was $20 per share grant. Using the Black-Scholes option pricing model, the company estimated the value and key employees e December ning January hon shares at S on March 31, 2023, 30,000 options were exercised when the market value of common stock was 14 per share. The remainder of the options expired unexercised. The company has a December 31 year-end. Record the journal entries for Braeben's stock options. December 31, 2021 Date Explanation Account Debit Credit December 31, 2022 Date Explanation/Account Debit Credit Mar 31, 2023 Date Explanation/Account Debit Credit Dec 31, 2027 - Expiration Date Explanation/Account Debit Credit

Answer 1

Stock option are granted on 1st Jan 2021 and since options are excercisable with effect from 1st Jan 2023, there is vesting period of two years. So company has to be record compensation expenses by end of 2021 and 2022 (Refer Journal entry 1 and 2). The total value of the options is $495,000 (180,000 x $2.75), and the vesting period is 2 years, so each year the company will record $247,500 ($495,000/2).

When 30,000 options are excercised on March 31st 2023, additional paid-in capital built up during the vesting period will be reversed and credit will be to additional paid-in capital (common stock). Cash account will be debited with $90,000 (30,000 X $ 30).

Expired option will be shifted to separate additional paid-in capital account to differentiate it from excercised stock options. Unexcercised option of 150,000 X $2.75 = $412,500.

31st December 2021 # Account Name 1 Compensation expense Additional paid-in capital - stock options Debit 247500 Credit 247500 31st December 2022 2 Compensation expense Additional paid-in capital - stock options 247500 247500 31st March 2023 3 Cash Account Additional paid-in capital - stock options Additional paid-in capital - common stock 900000 82500 982500 31st December 2027 - Expiration 4 Additional paid-in capital - stock options 412500 Additional paid-in capital - Expired options 412500