Chapter 16: Stock Compensation Flashcards
—————– BACKGROUND INFORMATION ————-
On October 15, 2021, when the share price is $58, Pumpkin Corporation shareholders approve an employee compensation plan that include stock options for executives.
On January 1, 2022, when the share price is $60, Pumpkin Corporation grants 8,000 options to
the CEO, Charlie Brown.
Each option allows the purchase of one share of $1 par value common stock at $60 per share within the next 10 years.
The options have a four-year vesting period. Using a Black-Scholes option pricing model, a valuation expert confirms the value of the 8,000 options is $80,000 on January 1, 2022.
—————- Question ———————-
How much compensation expense does Pumpkin Corporation recognize and in which years?
In each of 2022, 2023, 2024, and 2025, the journal entry to recognize the expense is:
Dr. Compensation Expense 20,000
Cr. APIC – Stock Options 20,000
—————– BACKGROUND INFORMATION ————-
On October 15, 2021, when the share price is $58, Pumpkin Corporation shareholders approve an employee compensation plan that include stock options for executives.
On January 1, 2022, when the share price is $60, Pumpkin Corporation grants 8,000 options to
the CEO, Charlie Brown.
Each option allows the purchase of one share of $1 par value common stock at $60 per share within the next 10 years.
The options have a four-year vesting period. Using a Black-Scholes option pricing model, a valuation expert confirms the value of the 8,000 options is $80,000 on January 1, 2022.
—————- Question ———————-
On July 1, 2026, the CEO exercises 6,000 of the 8,000 options. Does Pumpkin Corporation need to make any journal entries?
Dr. Cash 360,000
Dr. APIC – Stock Options 60,000
Cr. Common Stock, $1 par value 6,000
Cr. APIC – CS 414,000
—————– BACKGROUND INFORMATION ————-
On October 15, 2021, when the share price is $58, Pumpkin Corporation shareholders approve an employee compensation plan that include stock options for executives.
On January 1, 2022, when the share price is $60, Pumpkin Corporation grants 8,000 options to
the CEO, Charlie Brown.
Each option allows the purchase of one share of $1 par value common stock at $60 per share within the next 10 years.
The options have a four-year vesting period. Using a Black-Scholes option pricing model, a valuation expert confirms the value of the 8,000 options is $80,000 on January 1, 2022.
—————- Question ———————-
Pumpkin Corporation’s CEO does not exercise the last 2,000 options before they expire on January 1, 2032.
Does the expiration of the options affect the balance sheet?
Dr. APIC – Stock Options 20,000
Cr. APIC – Expired Stock Options 20,000
