Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2021, options were granted for 56 million $1 par common shares. The exercise price is the market price on the grant date-$9 per share. Options cannot be exercised prior to January 1, 2023, and expire December 31, 2027. The fair value of the 56 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. to 5. Prepare the appropriate journal entries to record compensation expense on December 31, 2021 and 2022. Prepare the appropriate journal entry to record the exercise of 75% of the options on March 12, 2023, when the market price is $10 per share and the entry on December 31, 2027, when the remaining options that have vested expire without being exercised.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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1 Record compensation expense on December 31, 2021.
2 Record compensation expense on December 31, 2022.
3 Record the exercise of 75% of the options on March 12,
2023, when the market price is $10 per share.
4 Record expiration of options.
Transcribed Image Text:1 Record compensation expense on December 31, 2021. 2 Record compensation expense on December 31, 2022. 3 Record the exercise of 75% of the options on March 12, 2023, when the market price is $10 per share. 4 Record expiration of options.
Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2021, options were granted for
56 million $1 par common shares. The exercise price is the market price on the grant date-$9 per share. Options cannot be exercised
prior to January 1, 2023, and expire December 31, 2027. The fair value of the 56 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. to 5. Prepare the appropriate journal entries to record compensation expense on December 31, 2021 and 2022. Prepare the
appropriate journal entry to record the exercise 75% of the options on March 12, 2023, when the market price is $10 per share and
the entry on December 31, 2027, when the remaining options that have vested expire without being exercised.
Complete this question by entering your answers in the tabs below.
Transcribed Image Text:Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2021, options were granted for 56 million $1 par common shares. The exercise price is the market price on the grant date-$9 per share. Options cannot be exercised prior to January 1, 2023, and expire December 31, 2027. The fair value of the 56 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. to 5. Prepare the appropriate journal entries to record compensation expense on December 31, 2021 and 2022. Prepare the appropriate journal entry to record the exercise 75% of the options on March 12, 2023, when the market price is $10 per share and the entry on December 31, 2027, when the remaining options that have vested expire without being exercised. Complete this question by entering your answers in the tabs below.
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