Assume that Taxa Company has a qualified stock-option plan for top management.Each stock option represents the right to purchase a share of Taxa Company $1 par value common stock beginning January 1, 2015.Employees must exercise this option before December 31, 2017.Taxa Company granted 5,000 stock options at the beginning of 2010 with a 5-year vesting period.Assume that Taxa did not declare or pay a dividend between 2010 and 2015.The following data related to the options grant:

Market price of stock at the grant date (January 1, 2010)$42

Market price of stock on December 31, 2010$50

Volatility of the stock at grant date (January 1, 2010)16.31005%

Volatility of the stock on December 31, 201017.35085%

Risk Free Rate on January 1, 20102%

Risk Free Rate on December 31, 20102.5%

1. Assume that Taxa Company has a qualified stock-option plan for top management. Each stock option represents the right to purchase a share of Taxa Company $1 par value common stock beginning January 1, 2015. Employees must exercise this option before December 31, 2017. Taxa Company granted 5,000 stock options at the beginning of 2010 with a 5-year vesting period. Assume that Taxa did not declare or pay a dividend between 2010 and 2015. The following data related to the options grant: Market price of stock at the grant date (January 1, 2010) $42 Market price of stock on December 31, 2010 $50 Volatility of the stock at grant date (January 1, 2010) 16.31005% Volatility of the stock on December 31, 2010 17.35085% Risk Free Rate on January 1, 2010 2% Risk Free Rate on December 31, 2010 2.5% Instructions: (a) Prepare the stock option related disclosure and journal entries for 2010, 2011, 2012, and 2013. Used the Black Scholes template to calculate the estimated fair value of the stock options (b) Assume that during 2014, 25% of the stock options are forfeited. Prepare the stock option related journal entry on 12/31/14. (4 points) (c) Assume that rather than options, Taxa Company granted 1,000 shares of restricted stock at the beginning of 2010 with a 5-year vesting period. Employees were restricted from selling the stock until January 1, 2015. Prepare the restricted stock related disclosure and journal entries for 2010, 2011, 2012, and 2013. (d) Assume that on December 31, 2014, 20% of the restricted stocks are forfeited. Prepare the restricted stocks related journal entry on 12/31/14. (e) In 2010, Taxa Company also implemented an employee stock purchase plan (ESPP) where employees were able to purchase stock for a 10% discount. 1,000 shares were issued under this plan on December 31, 2010. Prepare the journal entry to record the employee purchase of the shares under the ESPP plan. Option Value based on the Black-Scholes Model: Black-Scholes Option Pricing Model Inputs: Stock Price (S) Strike Price (X) Volatility (s) Risk-free Rate Time to expiration (T) Dividend Yield # of Options (000) Tax Rate Output: D1 D2 N(D1) N(D2) Call Price Put Price Value of Call Options (000) After-tax Option Value (000) *Note: This spreadsheet requires iterative calculations which may result in circular references. To correct this problem, go to "Tools" - "Options" - Calculation and check the "iteration" box. $66.00 $66.00 15.32% 1.79% 3 yrs 1.79% 100,000 35.00% 0.13263 -0.13263 0.55276 0.44724 $6.60000 $6.60000 $660,000 $429,000