Assume that Sarazan Company has a share-option plan for top management. Each share option represents the right to purchase a $1 par value ordinary share in the future at a price equal to the fair value of the shares at the date of the grant. Sarazan has 5,000 share options outstanding, which were granted at the beginning of 2017. The following data relate to the option grant. Exercise price for options $40 Market price at grant date (January 1, 2017) $40 Fair value of options at grant date (January 1, 2017) $6 Service period 5 years Instructions(a) Prepare the journal entry(ies) for the first year of the share-option plan.(b) Prepare the journal entry(ies) for the first year of the plan assuming that, rather than options, 700 shares of restricted shares were granted at the beginning of 2017.(c) Now assume that the market price of Sarazan shares on the grant date was $45 per share. Repeat the requirements for  (a) and (b).(d) Sarazan would like to implement an employee share-purchase plan for rank-and-file employees, but it would like to avoid recording expense related to this plan. Explain how employee share-purchase plans are recorded.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Assume that Sarazan Company has a share-option plan for top management. Each share option represents the right to purchase a $1 par value ordinary share in the future at a price equal to the fair value of the shares at the date of the grant. Sarazan has 5,000 share options outstanding, which were granted at the beginning of 2017. The following data relate to the option grant.

Exercise price for options $40
Market price at grant date (January 1, 2017) $40
Fair value of options at grant date (January 1, 2017) $6
Service period 5 years

Instructions
(a) Prepare the journal entry(ies) for the first year of the share-option plan.
(b) Prepare the journal entry(ies) for the first year of the plan assuming that, rather than options, 700 shares of restricted shares were granted at the beginning of 2017.
(c) Now assume that the market price of Sarazan shares on the grant date was $45 per share. Repeat the requirements for  (a) and (b).
(d) Sarazan would like to implement an employee share-purchase plan for rank-and-file employees, but it would like to avoid recording expense related to this plan. Explain how employee share-purchase plans are recorded.

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