Prepare appropriate journal entries to record compensation

Reference no: EM131977439

Problem

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2016. The options permit holders to acquire 9 million of the company's $1 par common shares for $25 within the next six years, but not before January 1, 2019 (the vesting date). The market price of the shares on the date of grant is $27 per share. The fair value of the 9 million options, estimated by an appropriate option pricing model, is $7.5 per option.

Required:

1. Determine the total compensation cost pertaining to the incentive stock option plan.

2. & 3. Prepare the appropriate journal entries to record compensation expense on December 31, 2016, 2017 and 2018. Record the exercise of the options if all of the options are exercised on May 11, 2020, when the market price is $28 per share.

Record compensation expense on December 31, 2016.

Record compensation expense on December 31, 2017.

Record compensation expense on December 31, 2018.

Record the exercise of the options if all of the options are exercised on May 11, 2020, when the market price is $28 per share.

Reference no: EM131977439

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