Question

On January 1, 2018, Adams-Meneke Corporation granted 45 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 $28 per share. The fair value of the options, estimated by an appropriate option pricing model, is $6 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 2. Prepare the appropriate 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 10,000,000 should be entered as 10).) Total compensation cost million Required 1 Requir

Answer 1

Answeri o calculation of Total compensation cost Total compensation cost = options granted x Fair vakce of one option. =$45 Million x $ 6 =$270 Million :: Total compensation cost is $270 Million 2) Journal enky to record compensation expenses on Dec 3 320d pate particulars TLF Debit credit 2018 compensation expenses Ale Do $ 90 million $90 Milhoul To paid in capitale stock option [ $270 Million/syears] Being record compensation expenses] 3) Journal entries Date particulars F Debit credit 2019 compensation expenses Ale pol 1 $ 81 Million ($270 Million * 95%, *2/3)- $90 Million) | Being record compensation ea pense? 81 Million 2020 compensation expenses Ale pr DOC-31 $85.5 Millal 270 Million x 95% *%) - $90 Million $81Hillan To paid in capital-stock' options Being record compensation expeu ses]. $85.5 Millal Dec-11 paid in Capital-stock options