CHAPTER 19 (6.)

On January 1, 2018, Adams-Meneke Corporation granted 15 million incentive stock options to division managers, each permitting holders to purchase one share of the companys $1 par common shares within the next six years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $52 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. Managements policy is to estimate forfeitures. No forfeitures are anticipated. Ignore taxes. Required:

1. Determine the total compensation cost pertaining to the options on January 1, 2018. 2. Prepare the appropriate journal entry to record compensation expense on December 31, 2018. 3. Unexpected turnover during 2019 caused an estimate of the forfeiture of 5% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2019 and 2020.

Required 1 Required 2 Required 3 Determine the total compensation cost pertaining to the options on January 1, 2018. (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).) Total compensation cost 120 million S Required 1 Required 2 Required 3 Prepare the appropriate journal entry to record compensation expense on December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) No Date General Journal Debit Credit December 31, 201 Compensation expense 1 40.0 Paid-in capital-stock options 40.0x Required 1 Required 2 Required 3 Unexpected turnover during 2019 caused an estimate of the forfeiture of 5% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2019 and 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).) Show less No Date General Journal Debit Credit December 31, 2011Compensation expense 1 46.00 Paid-in capital-stock options 46.00 December 31, 202 Compensation expense 2 38.00 Paid-in capital -stock options 38.00