The journal entry on the date of grant. Given information: Number of shares as an option is 80,000 Par value of common stock is $1. Exercise price per share is $37. Vesting time period is 2 years. Estimated fair value at the grant date is $4,000,000 ( 80 , 000 shares × $ 50 per share ) . Initial vesting probability is 60%.

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Answer 1

Question

Chapter 19, Problem 19.3E

a.

To determine

The journal entry on the date of grant.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

b.

To determine

Prepare journal entry as there is no change in vesting probability.

c.

To determine

Journal entries for the year 2, assuming that vesting period probability increases to 80%.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

Vesting probability of year is 80%.

d.

To determine

The recording of exercising and expiration of all options and journal entries related to it.

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Yost received 300 NQOs (each option gives Yost the right to purchase 10 shares of Cutter Corporation stock for $19 per share). At the time he started working for Cutter Corporation three years ago, Cutter's stock price was $19 per share. Yost exercised all of his options when the share price was $38 per share. Two years after acquiring the shares, he sold them at $59 per share. Note: Input all amounts as positive values. Leave no answer blank. Enter zero if applicable. d. Assume that Yost's options were exercisable at $24 and expired after five years. If the stock only reached $22 during its high point during the five-year period, what are Yost's tax consequences on the grant date, the exercise date, and the date the shares are sold, assuming his ordinary marginal rate is 35 percent and his long-term capital gains rate is 15 percent? Grant date Exercise date Taxes Due Sale date

Mark received 10 ISOs (each option gives him the right to purchase 14 shares of Hendricks Corporation stock for $6 per share) at the time he started working for Hendricks Corporation five years ago, when Hendricks's stock price was $5 per share. Now that Hendricks's share price is $35 per share, Mark intends to exercise all of his options and hold all of his shares for more than one year. Assume that more than a year after exercise, Mark sells the stock for $35 a share. Note: Enter all amounts as positive values. Leave no answers blank. Enter zero if applicable. b. What are Hendricks's tax consequences on the grant date, the exercise date, and the date Mark sells the shares? Grant date Exercise date Sale date Tax Benefit

Yost received 300 NQOs (each option gives Yost the right to purchase 10 shares of Cutter Corporation stock for $19 per share). At the time he started working for Cutter Corporation three years ago, Cutter's stock price was $19 per share. Yost exercised all of his options when the share price was $38 per share. Two years after acquiring the shares, he sold them at $59 per share. Note: Input all amounts as positive values. Leave no answer blank. Enter zero if applicable. c. Assume that Yost is "cash poor" and needs to engage in a same-day sale in order to buy his shares. Due to his belief that the stock price is going to increase significantly, he wants to maintain as many shares as possible. How many shares must he sell in order to cover his purchase price and taxes payable on the exercise? Number of shares to be sold

Answer 2

Question

Chapter 19, Problem 19.3E

a.

To determine

The journal entry on the date of grant.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

b.

To determine

Prepare journal entry as there is no change in vesting probability.

c.

To determine

Journal entries for the year 2, assuming that vesting period probability increases to 80%.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

Vesting probability of year is 80%.

d.

To determine

The recording of exercising and expiration of all options and journal entries related to it.

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Answer 3

Question

Chapter 19, Problem 19.3E

a.

To determine

The journal entry on the date of grant.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

b.

To determine

Prepare journal entry as there is no change in vesting probability.

c.

To determine

Journal entries for the year 2, assuming that vesting period probability increases to 80%.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

Vesting probability of year is 80%.

d.

To determine

The recording of exercising and expiration of all options and journal entries related to it.

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Answer 4

Question

Chapter 19, Problem 19.3E

a.

To determine

The journal entry on the date of grant.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

b.

To determine

Prepare journal entry as there is no change in vesting probability.

c.

To determine

Journal entries for the year 2, assuming that vesting period probability increases to 80%.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

Vesting probability of year is 80%.

d.

To determine

The recording of exercising and expiration of all options and journal entries related to it.

Expert Solution & Answer

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Answer 5

Chapter 19, Problem 19.3E

a.

To determine

The journal entry on the date of grant.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

b.

To determine

Prepare journal entry as there is no change in vesting probability.

c.

To determine

Journal entries for the year 2, assuming that vesting period probability increases to 80%.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

Vesting probability of year is 80%.

d.

To determine

The recording of exercising and expiration of all options and journal entries related to it.

Answer 6

Chapter 19, Problem 19.3E

a.

To determine

The journal entry on the date of grant.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

Answer 7

Chapter 19, Problem 19.3E

a.

To determine

The journal entry on the date of grant.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

Answer 8

b.

To determine

Prepare journal entry as there is no change in vesting probability.

Answer 9

b.

To determine

Prepare journal entry as there is no change in vesting probability.

Answer 10

c.

To determine

Journal entries for the year 2, assuming that vesting period probability increases to 80%.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

Vesting probability of year is 80%.

Answer 11

c.

To determine

Journal entries for the year 2, assuming that vesting period probability increases to 80%.

Given information:

Number of shares as an option is 80,000

Par value of common stock is $1.

Exercise price per share is $37.

Vesting time period is 2 years.

Estimated fair value at the grant date is $4,000,000 (80,000 shares×$50 per share) .

Initial vesting probability is 60%.

Vesting probability of year is 80%.

Answer 12

d.

To determine

The recording of exercising and expiration of all options and journal entries related to it.

Answer 13

d.

To determine

The recording of exercising and expiration of all options and journal entries related to it.

Answer 14

Expert Solution & Answer

Answer 15

Expert Solution & Answer

Answer 16

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Answer 17

Ch. 19 - What is the allocation period used to expense...Ch. 19 - How do companies account for stock-based...Ch. 19 - Do companies with equity-based compensation plans...Ch. 19 - When accounting for employee stock options, will a...Ch. 19 - Prob. 19.5Q Ch. 19 - Prob. 19.6Q Ch. 19 - Prob. 19.7Q Ch. 19 - Prob. 19.8Q Ch. 19 - Prob. 19.9Q Ch. 19 - Prob. 19.10Q

Prepare journal entry as there is no change in vesting probability.

The recording of exercising and expiration of all options and journal entries related to it.

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