9th Edition

ISBN: 9781259722660

Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher: McGraw-Hill Education

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Chapter 19, Problem 19.2BYP

Communication Case 19–2

Stock options; basic concepts; prepare a memo

• LO19–2

You are assistant controller of Stamos & Company, a medium-size manufacturer of machine parts. On October 22, 2017, the board of directors approved a stock option plan for key executives. On January 1, 2018, a specific number of stock options were granted. The options were exercisable between January 1, 2020, and December 31, 2024, at 100% of the quoted market price at the grant date. The service period is for 2018 through 2020.

Your boss, the controller, is one of the executives to receive options. Neither he nor you have had occasion to deal with GAAP on accounting for stock options. He and you are aware of the traditional approach your company used years ago but do not know the newer method. Your boss understands how options might benefit him personally but wants to be aware also of how the options will be reported in the financial statements. He has asked you for a one-page synopsis of accounting for stock options under the fair value approach. He instructed you, “I don’t care about the effect on taxes or earnings per share—just the basics, please.”

Required:

Prepare such a report that includes the following:

1. At what point should the compensation cost be measured? How should it be measured?
2. How should compensation expense be measured for the stock option plan in 2018 and later?
3. If options are forfeited because an executive resigns before vesting, what is the effect of that forfeiture of the stock options on the financial statements?
4. If options are allowed to lapse after vesting, what is the effect on the financial statements?

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Chapter 19, Problem 19.1BYP

Chapter 19, Problem 19.3BYP

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Fill in the Blanks Type your answers in all of the blanks and submit X₁ X² Ω· Kick the Bucket Co. issued 30,000 at-the-money stock options to its management on January 1, 2025. These options vest on January 1, 2028. Kick The Budget's share price was $12 on the grant date and $18 on the vesting date. Estimates of the fair value of these options showed that they were worth $2 on the grant date and $7 on the vesting date. On the vesting date, management exercised all 30,000 options. Kick the Budget has a December 31 year-end. 4 Please fill in the amounts below for the journal entry required on January 1, 2028, Dr. cash Type your answer here MacBook Air C ← DII DD 4 F7 F8 F9 F10 % 5 T G Ke F5 B 6 Y H F6 & 7 N U J * 0 8 M K ( 9 V O ) O L P 4 F11 11 + = ? 11 1 4) F12 } ] d

Help Save & E Che Problem 19-1 (Algo) Stock options; forfeiture; exercise [LO19-2] On October 15, 2020, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2021, 30 million stock options were granted, exercisable for 30 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2024, and December 31, 2026, at 80% of the quoted market price on January 1, 2021, which was $15. The fair value of the 30 million options, estimated by an appropriate option pricing model, is $5 per option. Ensor chooses the option to recognize forfeitures only when they occur. Ten percent (3 million) of the options were forfeited when an executive resigned in 2022. All other options were exercised on July 12, 2025, when the stock's price jumped unexpectedly to $30 per share. Required: 1. When is Ensor's stock option measurement date? 2. Determine the compensation expense for the stock option plan in 2021.…

Chapter 19 Solutions

Intermediate Accounting

Ch. 19 - Prob. 19.1Q Ch. 19 - Prob. 19.2Q Ch. 19 - The Tax Code differentiates between qualified...Ch. 19 - Stock option (and other share-based) plans often...Ch. 19 - What is a simple capital structure? How is EPS...Ch. 19 - Prob. 19.6Q Ch. 19 - Blake Distributors had 100,000 common shares...Ch. 19 - Why are preferred dividends deducted from net...Ch. 19 - Prob. 19.9Q Ch. 19 - The treasury stock method is used to incorporate...

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