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On January 1 st of Year 1, Kittys Korner Stores, Inc., granted 30,000 options to acquire 30,000 shares of $2 par value common stock at
On January 1st of Year 1, Kittys Korner Stores, Inc., granted 30,000 options to acquire 30,000 shares of $2 par value common stock at an exercise price of $36 per share. The options vest in three years on January 1st of Year 4 and expire on January 1st of year 11. A binomial option pricing model was used to determine the fair value of the award resulting in a value of $12 per share. Kittys uses the expected forfeiture rate method. The initial expected forfeiture rate is 0% or the vesting probability is 100%.
REQUIRED:
- Prepare any journal entry or entries required at the date of the grant.
- Prepare the journal entries required for each year of the vesting period.
- Assume that all options are exercised on December 31st of Year 5. Prepare the journal entry to record the exercise of the options.
- Assume that all options expire. Prepare the journal entry to record the expiration of the options on December 31st of Year 11.
- Independent of your responses to Parts a d, prepare the journal entries required to recognize compensation expense for each year of the vesting period assuming the company used the following vesting probabilities:
- Year 1 = 100%
- Year 2 = 70%
- Year 3 = 45%
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