Question

Heidi Software Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2021, that permit executives to acquire 12 million of the company's $1 par common shares within the next five years, but not before December 31, 2022 (the vesting date). The exercise price is the market price of the shares on the date of grant, $84.50 per share. The fair value of the 12 million options, estimated by an appropriate option pricing model, is $20 per option. No forfeitures are anticipated. Ignore taxes. Required: 1. Determine the total compensation cost pertaining to the options. 2. Prepare the appropriate journal entry to record the award of options on January 1, 2021. 3. Prepare the appropriate journal entry to record compensation expense on December 31, 2021. 4. Prepare the appropriate journal entry to record compensation expense on December 31, 2022.

Answer 1

nswer page-01 Stock options: gk is the option to purchase the shores of the company at a pore determined price especially for the employees which is available for a certain period. Required Total compensation cost pertaining Compute total compensation cost of stock options to corporation 40 as given below. 1 The fair market value of the option is multiplied with number of options granted to determine Compensation cost of stock options. Total compensation cost of stock options - Estimated fair market value of the option . x no. of options granted ::$3 x 4,000,000 shares = $12,000,000 the cost of compensation paukage is distributed over the resting period. ..

until the completion of first year page: 02 of reporting date. It will not be recognized by the employer. It is not required to 91ecord any journal entry . . © Computing .. computing compensation expense allocated cach years as given below. e Total compensation cost of stock compensation expense =---_options Vesting period $ 12000000 x 20 per option - 2 years compensation expense = $240000000 journalize the stock option transaction for compensa -tion expense for 2021 Date . ccount title & journal Explanation Debit - Giedit Dec-31 | compensation expense * 240000000 2001 paid-in.capital- shock options $240000000 'C To suecord compensation expense)'

page:03 O journalize the stock option transaction for compensation expense for doad. - Date Gedit Del.-3) 2002 powinal Account title of tuplanation Dobit compensation expense $240000000 paid-in-capital - stock options (to second compensation -expense 1240000000