Prepare the journal entry to record the exercise

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Question - Suppose Norman Industries offered a stock option plan to its managers.  On January 1, 2018, options were granted for 40 million $1 par common shares.  The exercise price is the market price on the grant date--$8 per share.  Options cannot be exercised prior to January 1, 2021, and they expire December 31, 2024.  The fair value of the 40 million options, estimated using an appropriate option-pricing model is $3 per option.  Average market price of the stock is $10 per share during 2018-2020.

(a) Prepare the journal entry to record compensation expense at year-end 2018.

(b) Prepare the journal entry to record the exercise of 75% of the options on March 12, 2021 when the market price is $9 per share.

 

Reference no: EM133132248

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