Question
Please explain termination amount @2009 35000*1/2*18/20 =157500 why 18/20 where come from? Thanks E16-11(Issuance, Exercise, and Termination of Stock Options) On January 1, 2008, Titania
Please explain termination amount @2009 35000*1/2*18/20 =157500 why 18/20 where come from?
Thanks
E16-11(Issuance, Exercise, and Termination of Stock Options) On January 1, 2008, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company's $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2010, by grantees still in the employ of the company, and expiring December 31, 2014. The service period for this award is 2 years. Assume that the fair value option pricing model determines total compensation expense to be $350,000.
On April 1, 2009, 2,000 options were terminated when the employees resigned from the company. The market value of the common stock was $35 per share on this date.
On March 31, 2010, 12,000 options were exercised when the market value of the common stock was $40 per share.
Hint: (LO 4)
Instructions
Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2008, 2009, and 2010.
1/1/08No entry
12/31/08Compensation Expense............................................................ 175,000
Paid-in CapitalStock Options................................ 175,000
($350,000 X 1/2) (To recognize
compensation expense for 2008)
4/1/09Paid-in CapitalStock Options.............................................. 17,500
Compensation Expense.............................................. 17,500
($175,000 X 2,000/20,000)
(To record termination of stock
options held by resigned employees)
12/31/09Compensation Expense............................................................ 157,500
Paid-in CapitalStock Options................................ 157,500
($350,000 X 1/2 X 18/20) (To recognize
compensation expense for 2009)
3/31/10Cash (12,000 X $25).................................................................. 300,000
Paid-in CapitalStock Options.............................................. 210,000
($350,000 X 12,000/20,000)
Common Stock............................................................ 120,000
Paid-in Capital in Excess of Par................................ 390,000
(To record exercise of stock options)
Note: There are 6,000 options unexercised as of 3/31/10 (20,000 - 2,000 - 12,000).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started