D is corrent. When there is no observable market price of the option or estimate of the value of the option, the intrinsic value is measured at the end of each reporting period. The intrinsic value of the option is net of any amounts that the employee must pay. The employees must pay 70% of the value of the stock on the exercise date. Therefore the employees will pay 70% × $60 = $42 per share. On the exercise date, the compensation expense recognized is $60 – $42 = $18 × 10,000 options = $180,000. The journal entry to record the compensation expense and the issuance of the stock would be
| Cash | 420,000 | | Compensation expense | 180,000 | | | Common stock | | 200,000 | | Additional paid-in capital | | 400,000 |
A is incorrect. When there is no observable market price of the option or estimate of the value of the option, the intrinsic value is measured at the end of each reporting period. The intrinsic value of the option is net of any amounts that the employee must pay. The employees must pay 70% of the value of the stock on the exercise date. Therefore the employees will pay 70% × $60 = $42 per share. On the exercise date, the compensation expense recognized is $60 – $42 = $18 × 10,000 options = $180,000. The journal entry to record the compensation expense and the issuance of the stock would be| Cash | 420,000 | | Compensation expense | 180,000 | | | Common stock | | 200,000 | | Additional paid-in capital | | 400,000 |
B is incorrect. When there is no observable market price of the option or estimate of the value of the option, the intrinsic value is measured at the end of each reporting period. The intrinsic value of the option is net of any amounts that the employee must pay. The employees must pay 70% of the value of the stock on the exercise date. Therefore the employees will pay 70% × $60 = $42 per share. On the exercise date, the compensation expense recognized is $60 – $42 = $18 × 10,000 options = $180,000. The journal entry to record the compensation expense and the issuance of the stock would be| Cash | 420,000 | | Compensation expense | 180,000 | | | Common stock | | 200,000 | | Additional paid-in capital | | 400,000 |
C is incorrect. When there is no observable market price of the option or estimate of the value of the option, the intrinsic value is measured at the end of each reporting period. The intrinsic value of the option is net of any amounts that the employee must pay. The employees must pay 70% of the value of the stock on the exercise date. Therefore the employees will pay 70% × $60 = $42 per share. On the exercise date, the compensation expense recognized is $60 – $42 = $18 × 10,000 options = $180,000. The journal entry to record the compensation expense and the issuance of the stock would be| Cash | 420,000 | | Compensation expense | 180,000 | | | Common stock | | 200,000 | | Additional paid-in capital | | 400,000 |
|
