Under its executive stock option plan, National Corporation granted 18 million options on January 1, 2024, that permit executives to purchase 18 million of the company's $1 par common shares within the next six years, but not before December 31, 2026 (the vesting date). The exercise price is the market price of the shares on the date of grant, $15 per share. The fair value of the options, estimated by an appropriate option pricing model, is $2 per option. Suppose that unexpected turnover during 2025 caused the forfeiture of 5% of the stock options. Compute the amount of compensation expense for 2025 and 2026. Note: Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50) Compensation expense ($ in millions) 2025 2026

Under its executive stock option plan, National Corporation granted 18 million options on January 1, 2024, that permit executives to purchase 18 million of the company's $1 par common shares within the next six years, but not before December 31, 2026 (the vesting date). The exercise price is the market price of the shares on the date of grant, $15 per share. The fair value of the options, estimated by an appropriate option pricing model, is $2 per option. Suppose that unexpected turnover during 2025 caused the forfeiture of 5% of the stock options. Compute the amount of compensation expense for 2025 and 2026. Note: Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50) Compensation expense ($ in millions) 2025 2026

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter15: Contributed Capital

Section: Chapter Questions

Problem 7RE: On January 1, 2019, Phoenix Corporation adopts a performance-based share option plan for 25...

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Walters Audio Visual, Inc. offers a stock option plan to its regional managers. On January 1, 2018, 40 millionoptions were granted for 40 million $1 par common shares. The exercise price is the market price on the grantdate, $8 per share. Options cannot be exercised prior to January 1, 2020, and expire December 31, 2024. The fairvalue of the options, estimated by an appropriate option pricing model, is $2 per option. Because the plan doesnot qualify as an incentive plan, Walters will receive a tax deduction upon exercise of the options equal to theexcess of the market price at exercise over the exercise price. The income tax rate is 40%.Required:1. Determine the total compensation cost pertaining to the stock option plan.2. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31,2018.3. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31,2019.4. Record the exercise of the options and…
Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2018,options were granted for 40 million $1 par common shares. The exercise price is the market price on the grantdate—$8 per share. Options cannot be exercised prior to January 1, 2020, and expire December 31, 2024. The fairvalue of the 40 million options, estimated by an appropriate option pricing model, is $1 per option.Required:1. Determine the total compensation cost pertaining to the incentive stock option plan.2. Prepare the appropriate journal entry to record compensation expense on December 31, 2018.3. Prepare the appropriate journal entry to record compensation expense on December 31, 2019.4. Prepare the appropriate journal entry to record the exercise of 75% of the options on March 12, 2020, whenthe market price is $9 per share.5. Prepare the appropriate journal entry on December 31, 2024, when the remaining options that have vestedexpire without being exercised.
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