Davidson Company compensates its key employees by offering stock options as part of total compensation. On January 1 of the current year, Davidson granted 80,000 options to acquire 80,000 shares of its $1 par value common stock at an exercise price of $37 per share. The market price on the date of the grant is also $37 per share, so there is no intrinsic value. At grant date, the fair value of the options is $4,000,000, or $50 per option. The initial vesting probability is assumed to be 60%. The option plan qualifies as an equity-classified award. There is a 2-year vesting period required before employees can purchase the shares. Read the requirements. Account Compensation Expense December 31, Year 2 2,000,000 Additional Paid-in Capital - Stock Options 2,000,000 Requirement c. Assume that employees exercise 80% of the options expected to vest from part (b) and the other 20% expire. Prepare any journal entries required to record the exercise and expirations. (Record debits first, then credits. Exclude explanations from any journal entries.) Prepare the journal entry to record the exercise assuming that employees exercise 80% of the options. Account Cash Additional Paid-in Capital - Stock Options Common Stock Additional Paid-in Capital in Excess of Par - Common Exercise date
Davidson Company compensates its key employees by offering stock options as part of total compensation. On January 1 of the current year, Davidson granted 80,000 options to acquire 80,000 shares of its $1 par value common stock at an exercise price of $37 per share. The market price on the date of the grant is also $37 per share, so there is no intrinsic value. At grant date, the fair value of the options is $4,000,000, or $50 per option. The initial vesting probability is assumed to be 60%. The option plan qualifies as an equity-classified award. There is a 2-year vesting period required before employees can purchase the shares. Read the requirements. Account Compensation Expense December 31, Year 2 2,000,000 Additional Paid-in Capital - Stock Options 2,000,000 Requirement c. Assume that employees exercise 80% of the options expected to vest from part (b) and the other 20% expire. Prepare any journal entries required to record the exercise and expirations. (Record debits first, then credits. Exclude explanations from any journal entries.) Prepare the journal entry to record the exercise assuming that employees exercise 80% of the options. Account Cash Additional Paid-in Capital - Stock Options Common Stock Additional Paid-in Capital in Excess of Par - Common Exercise date
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Davidson Company compensates its key employees by offering stock options as part of total compensation. On January 1 of the current year, Davidson granted 80,000 options to acquire 80,000
shares of its $1 par value common stock at an exercise price of $37 per share. The market price on the date of the grant is also $37 per share, so there is no intrinsic value. At grant date, the fair
value of the options is $4,000,000, or $50 per option. The initial vesting probability is assumed to be 60%. The option plan qualifies as an equity-classified award. There is a 2-year vesting period
required before employees can purchase the shares.
Read the requirements.
Account
Compensation Expense
December 31, Year 2
2,000,000
Additional Paid-in Capital - Stock Options
2,000,000
Requirement c. Assume that employees exercise 80% of the options expected to vest from part (b) and the other 20% expire. Prepare any journal entries required to record the exercise and
expirations. (Record debits first, then credits. Exclude explanations from any journal entries.)
Prepare the journal entry to record the exercise assuming that employees exercise 80% of the options.
Account
Cash
Additional Paid-in Capital - Stock Options
Common Stock
Additional Paid-in Capital in Excess of Par - Common
Exercise date
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