Question
Walters Audio Visual, Inc., offers a stock option plan to its regional managers. On January 1, 2016, options were granted for 25 million $1 par
Walters Audio Visual, Inc., offers a stock option plan to its regional managers. On January 1, 2016, options were granted for 25 million $1 par common shares. The exercise price is the market price on the grant date, $6 per share. Options cannot be exercised prior to January 1, 2018, and expire December 31, 2022. The fair value of the options, estimated by an appropriate option pricing model, is $2 per option. Because the plan does not qualify as an incentive plan, Walters will receive a tax deduction upon exercise of the options equal to the excess of the market price at exercise over the exercise price. The income tax rate is 40%. |
Required: |
1. | Determine the total compensation cost pertaining to the stock option plan. (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).) |
2. to 4. | Prepare the necessary journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) |
5. & 6. | Assume the option plan qualifies as an incentive plan if all of the options are exercised on March 20, 2021, when the market price is $9 per share. Prepare the necessary journal entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) |
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