Lawson will designate 150,000 shares of its $1 par value common stock for the granting of stock options to its officers and employees. Based on market prices, the exercise price for these options will be $25/share. Officers and employees are expected to stay employed with Lawson Company for 3 years from the date of grant to fulfill their service period.
Lawson will designate 150,000 shares of its $1 par value common stock for the granting of stock options to its officers and employees. Based on market prices, the exercise price for these options will be $25/share. Officers and employees are expected to stay employed with Lawson Company for 3 years from the date of grant to fulfill their service period. The CFO has performed a fair value calculation and has projected that the fair value of these options at the grant date will approximate $4,000,000. Lawson’s tax rate is 21%.
Based upon the information provided, prepare the required
Requirement 2 - Assuming this does not qualify as an incentive plan, answer the following questions, and provide the necessary journal entries, if any, Lawson will need to record.
- What journal entries (including the
deferred income tax expense) will Lawson instead record on December 31, 2022, 2023, and 2024?
- What is the after-tax effect on earnings each year?
- If all the options are exercised when the stock’s market price is $75, what are the journal entries to reflect the exercise and tax?
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