Question

Q3. Gimble Inc. granted 100 stock options to its key employees on 1/1/2020. The options vest after a 3- year service period and had a total grant-date fair value of $900. Each option has an exercise price of $20. During the second year of the service period, several employees left the company and thereby forfeited options with an original total grant-date fair value of $144. In the fourth year, after the options vested, Mary Lock exercised options with a grant-date fair value of $135 for common shares with a current FMV of $25 per share. a. Determine the total option-related compensation expense that was reported by Gimble in (i) year 1 of the service period and (ii) year 2 of the service period. Show calculations. Answer: Year 1 Year 2 b. Make the journal entry for the exercise of the options in the fourth year. Show supporting calculations. c. What was the aggregate intrinsic value of the options exercised by Mary Lock? (ii) What was the aggregate three-year compensation expense attributable to those options? Show supporting calculations. (i) _ d. Assume that options with a grant-date fair value of $300 were never exercised and, as a result, expire worthless after five years. Discuss the accounting for this situation.

Answer 1

83. calculations_4 Gimble Inc. compensation - expenses. T Year:-1 Total grant date fair value $900 Total granted stock options. 100. . 900 & $9 gol each stock option 100 Total grant date for value=) Grercise popice es samed with $9 - $20 = 11 $ gor each option CamScanner

in $_x_100_options = 1100$_ → 2100 & - 367 $ - - 3 years Yeal 1!- compensation expense is $367. Year :-2 Total grant value of $144 Lapsed. - i 900-144 $ = (156 $ $ 144 - 16 options Lapsed. L. (- 16 - 8 optiong – * 84 options & $20 foncord (1680 $9 A n da cs Scanned with. CamScanner

1680 - 756 $ = 924 $ should be the compensation got expense for 3 years. le 924 t - 308 d. - 3 years " But 3678 has been recognised in year 1 So 367-3088 - 598 has to be transfered to general reserve and 308 & has to recognised as year i=2_compensation expenses he Yeop e-2 Compensation expense as 308$ S-Searned the CamScanner

. b. Journal entries for 4th year Bank the 08 - 300$ (is options Nos Employee compensation expense Alca . 45 $ Cis options x5$ 25$-20$s To eaclity shave copital the 135 & 1 - To securities premium the 9408 (Being is options @ 9 $ each ie 135$ excercised by Mary lock for common Shases with FMy @ $25 per share) Ies Scanned with CamScanner