American Optical Corporation provides a variety of share-based compensation plans to its employees. Under itsexecutive stock option plan, the company granted options on January 1, 2018, that permit executives to acquire4 million of the company’s $1 par common shares within the next five years, but not before December 31, 2019(the vesting date). The exercise price is the market price of the shares on the date of grant, $14 per share. The fairvalue of the 4 million options, estimated by an appropriate option pricing model, is $3 per option. No forfeituresare anticipated. Ignore taxes.Required:1. Determine the total compensation cost pertaining to the options.2. Prepare the appropriate journal entry to record the award of options on January 1, 2018
American Optical Corporation provides a variety of share-based compensation plans to its employees. Under its
executive stock option plan, the company granted options on January 1, 2018, that permit executives to acquire
4 million of the company’s $1 par common shares within the next five years, but not before December 31, 2019
(the vesting date). The exercise price is the market price of the shares on the date of grant, $14 per share. The fair
value of the 4 million options, estimated by an appropriate option pricing model, is $3 per option. No forfeitures
are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the options.
2. Prepare the appropriate
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