On January 1, 2018, Adams-Meneke Corporation granted 25 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 sixyears, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shareson the date of grant, currently $10 per share. The fair value of the options, estimated by an appropriate optionpricing model, is $3 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 6% of the stock options. Determinethe adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2019 and 2020.
On January 1, 2018, Adams-Meneke Corporation granted 25 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 $10 per share. The fair value of the options, estimated by an appropriate option
pricing model, is $3 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
3. Unexpected turnover during 2019 caused an estimate of the forfeiture of 6% of the stock options. Determine
the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2019 and 2020.
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