ACC 201 Lecture Notes - Lecture 7: Income Statement

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20 Sep 2016

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Price per share at which owner of a traded option is entitled to buy or sell. When the employee is allowed to exercise and purchase stock, but the stock. To align incentives of employee with the owners. Both want the stock prices to go up. Esos were included in compensation expense on the income statement at intrinsic value (sh) at grant date. Firms could choose to recognize the esos as compensation expense at intrinsic value or the fair value on the income statement at the grant date. If the chose intrinsic, have to provide footnote disclosure of fair value of. 30,000 esos; exercise price = ; fair value = ; no par value common stock price = ; option vested in 3 years. Year 4: stock price is and employees all exercise their esos. Expense at fair value only those esos granted to the top five executives. Use the minimum value method to estimate the esos" fair value.

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Stock Compensation: Prime went public in 2005and experienced a continued increase in stock prices through 2007.With the sustained growth of the business and rising stock price,Prime developed a practice of granting annual stock option awardsto its executives at the beginning of each year.

On January 1, 2008, Prime granted 1,000 employee share optionsthat vest after a four-year service period, with an exercise priceof $30 per share. Using the Black-Scholes pricing model, it wasdetermined that the grant-date-fair-value-based measure of eachoption was $15. On the grant date, Primeâs stock was trading at $30per share.

On January 1, 2010, Prime decided to change the terms of theincentives for the third and fourth years of service of the 2008annual grant by modifying the exercise price to $20 per share.Using the Black-Scholes pricing model, management determined thatthe fair-value-based measure of the awards as of January 1, 2010was $9 before the terms of the award were modified and $12immediately after modification. The modification did not affect anyof the other terms or conditions of the awards. (No forfeitures areassumed.)

(1) How much compensation cost should Prime recognize in eachyear of the awardâs service period?

(2) How would the accounting for the awards change if themodification to the terms of the award was made on January 1, 2014,after the awards have become fully vested?

As part of its stock-based compensation package, on January 1, 2016, Weldon Well Supplies granted restricted stock units (RSUs) representing 100,000 $1 par common shares. At exercise, holders of the RSUs are entitled to receive cash or stock equal in value to the market price of those shares at exercise. The RSUs cannot be exercised until the end of 2019 (vesting date) and expire at the end of 2021. The $1 par common shares have a market price of $6 per share on the grant date. The fair value at December 31, 2016, 2017, 2018, 2019, and 2020, is $16, $12, $16, $10, and $12, respectively. All recipients are expected to remain employed through the vesting date.

Required: 1. to 4. Prepare the appropriate journal entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

scarletraccoon142

On January 1, 2014, Camp Co. grants options that permit keyexecutives to acquire 25 million of the companyâs $1 par commonstock within the next six years, but not before December 31, 2016[the vesting date]. The exercise price is the market price of theshares on the date of the grant, $10 per share. The fair value ofthe options, estimated by an appropriate option pricing model, is$3 per option.

1.	Determine the total compensation cost pertaining to the optionson 1/1/2014.
2,	Prepare the journal entry at the Grant Date, 1/1/2014.
3.	Prepare the appropriate journal entry to record compensationexpense on December 31, 2014.
4.	Unexpected turnover during 2015 caused the forfeiture of 6% ofthe stock options, Determine the adjusted compensation cost andprepare appropriate journal entries on December 31, 2015 andDecember 2016.

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ACC 201 Lecture Notes - Lecture 7: Income Statement

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