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Maritime Corp. is a junior mining company listed on the TSX. The common share price of...

Maritime Corp. is a junior mining company listed on the TSX. The common share price of Maritime fluctuates in value. Recent swings went from a high of $17 to a low of $0.50. Maritime issued stock options on 1 September 20X5 to a consultant, in exchange for a project completed over the last year. The consultant estimated her time was worth $48,000, but the company estimated that it could have had the necessary work done for about $40,000 cash. The options specified that 7,000 common shares could be bought for $0.40 per share at any time over the next 10 years. The market price of common shares was $2.50 on the day the options were issued. At the same time options were issued to the consultant, identical options were issued to the company lawyer for work done to date. An option pricing model valued each set of stock options at $44,000. Required:

1. Provide journal entries to record issuance of the two sets of options. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Assume that two years after issuance, when the market price of the shares was $15, the consultant exercised her options. Provide the appropriate entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. Assume that 10 years after issuance, when the market price of the shares was $0.10, the lawyer’s options expired. Provide the entry, if any. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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Homework Answers

Answer #1

Part 1

No.

Account titles and explanation

Debit

Credit

1

Consulting expense

44000

Contributed capital: stock options outstanding

44000

2

Legal expense

44000

Contributed capital: stock options outstanding

44000

Part 2

No.

Account titles and explanation

Debit

Credit

1

Cash (7000*0.40)

2800

Contributed capital: stock options outstanding

44000

Common shares

46800

Part 3

No.

Account titles and explanation

Debit

Credit

1

Contributed capital: stock options outstanding

44000

Contributed capital: stock options expired

44000
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