Question

Exercise 19-8 Stock options exercise; expirations (LO19-21 Walters Audio Visual Inc. offers an Incentive stock option plan to its regional managers. On January 1, 2018, options were granted for 32 million $1 par common shares. The exercise price is the market price on the grant date-$9 per share. Options cannot be exercised prior to January 1, 2020, and expire December 31, 2024. The fair value of the 32 million options, estimated by an appropriate option pricing model, is $1 per option Required: 1. Determine the total compensation cost pertaining to the Incentive stock option plan. 2 to 5. Prepare the appropriate journal entries to record compensation expense on December 31, 2018 and 2019. Prepare the appropriate journal entry to record the exercise of 75% of the options on March 12, 2020, when the market price is $10 per share and the entry on December 31, 2024, when the remaining options that have vested expire. Complete this question by entering your answers in the tabs below. Reg 1 Rey 2 to 5 Determine the total compensation cost pertaining to the incentive stock option plan. (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).) Total compensation cost million Reg 1 Reg 2 to 5 >

Answer 1

Part 1

Total compensation cost

$32 million

Compensation cost = 32*1 = $32 million

Part 2 to 5

No.	Date	General journal	Debit	Credit
2	December 31, 2018	Compensation expense	16
		Paid – in capital – stock options		16
3	December 31, 2019	Compensation expense	16
		Paid – in capital – stock options		16
4	March 12, 2020	Cash (32*9*75%)	216
		Paid in capital – stock options (75%*32)	24
		Common stock (32*1*75%)		24
		Paid in capital – excess of par		216
5	December 31,2024	Paid in capital – stock options (32-24)	8
		Paid – in capital – expiration of stock options		8