Use the ff. information for the next 2 questions:

1) On January 1, 20X6, Doro Corp. granted an employee an option to purchase 3,000 shares of Doro's P5 par value ordinary share at P20 per share. The option became exercisable on December 31, 20X7, after the employee completed two years of service. The option was exercised on January 10, 20X8. The market prices of Doro's stock were as follows:

January 1, 20X6 30

December 31, 20X7 50

January 10, 20X8 45

The Black-Sholes-Merton option pricing model estimated the value of the options at P8 each. For 20X6, Doro should recognize compensation expense of

a. 45,000 b. 12,000 c. 15,000 d. 0

2) Assume that Doro's plan is an unqualified plan and that the corporate tax rate is 30%, calculate the after tax cost of the stock option plan on the income statement.

a. 8,400 b. 4,800 c. 3,600 d. 7,800

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3) On January 1, 20x5, Heath Corp. established an employee stock ownership plan (ESOP). Selected transactions relating to the ESOP during 20x5 were as follows:

• On April 1, 20x5, Heath contributed P45,000 cash and 3,000 shares of its P10 par value ordinary stock to the ESOP. On this date, the market price of the stock was P18 a share.
• On October 1, 20x5, the ESOP borrowed P100,000 from Union National Bank and acquired 6,000 shares of Heath's common stock in the open market at P17 a share. The note is for one year, bears interest at 10%, and is guaranteed by Heath
• On December 15, 20x5, the ESOP distributed 8,000 shares of Heath's common stock to employees of Heath in accordance with the plan formula. On this date, the market price of the stock was P20 a share.

In its 20x5 income statement, what amount should Heath report as compensation expense relating to the ESOP?

a. 99,000 b. 155,000 c. 199,000 d. 259,000

PROVIDE SOLUTIONS