Reference no: EM132649160

Question - On January 1, 2020, Pharoah Corporation granted 21,100 options to key executives. Each option allows the executive to purchase one share of Pharoah's common shares at a price of $22 per share. The options were exercisable within a two-year period beginning January 1, 2022, if the grantee was still employed by the company at the time of the exercise. On the grant date, Pharoah's shares were trading at $18 per share, and a fair value options pricing model determined total compensation to be $710,000. Management has assumed that there will be no forfeitures because they do not expect any of the key executives to leave.

On May 1, 2022, 6,330 options were exercised when the market price of Pharoah's shares was $29 per share. The remaining options lapsed in 2023 because executives decided not to exercise them. Management was indeed correct in their assumption regarding forfeitures in that all executives remained with the company. Assume that Pharoah follows IFRS.

Required -

Prepare the necessary journal entries related to the stock option plan for the years ended December 31, 2020 through 2023.

Would the exercise price normally be higher or lower than the market price of the shares on the date of grant?