Question
STU Inc. is a new business that has been experiencing significant growth. To attract new staff, the company has established an employee stock option plan
STU Inc. is a new business that has been experiencing significant growth. To attract new staff, the company has established an employee stock option plan that has both an ESOP and a CSOP component to the program. The ESOP component is available to all employees, while the CSOP is only available to executive management.
At Dec 31, 2023, a total of 100,000 stock options were granted to 5 executive managers. The options have a vesting period of 2 years and expire 3 years from the end of the vesting period. If a manager leaves the firm, the options are terminated. Based on commonly used option pricing models, the intrinsic value of the 100,000 options is $200,000, and the time value of the options is $300,000. The exercise price on the shares is $45 for both the ESOP and CSOP.
a)Two front-line staff who were hired in 2023 decided that they would like to participate in the ESOP established by the company. On June 30, 2024, each of them purchased 1,000 options at a premium of $4.50 each and exercised their right to buy shares at the same time as the executive managers did. What are the journal entries for these transactions?
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