Question

On January 1, 2018, Adams-Meneke Corporation granted 30 million incentive stock options to division managers, each permitting holders to purchase one share of the company's $1 par common shares within the next six years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $40 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. Management's policy is to estimate forfeitures. No forfeitures are anticipated. Ignore taxes. Required: 1. Determine the total compensation cost pertaining to the options on January 1, 2018 ppropriate journal entry to record compensation expense on December 31, 2018. 3. Unexpected turnover during 2019 caused an estimate of the forfeiture of 5% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2019 and 2020. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Determine the total compensation cost pertaining to the options on January 1, 2018. (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).) Total compensation cost million < Required 1 Required 2 >

Answer 1

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Naming convention in drop down is not available can be slightly different: Solution: 1) Total Compensation Expense (30*4) $ 120 million Journal Entries 2) Debit Credit Date Dec.31 2018 401 IS 40 3) Dec.31 2019 Account title and explanation Compensation Expense (30*4)/3 Paid in Capital - stock Option (To record the compensation expense for 2018) Compensation Expense (40)-[(120*5%)/3*2] Paid in Capital - stock Option (To record the compensation expense for 2019) Compensation Expense (40)-[(120*5%)/3*1] Paid in Capital - stock Option (To record the compensation expense for 2020) 38 Dec.31 2020