Assume that Sarazan Company has a share-option plan for top management. Each share option represents the right to purchase a $1 par value ordinary share in the future at a price equal to the fair value of the shares at the date of the grant. Sarazan has 5,000 share options outstanding, which were granted at the beginning of 2014. The following data relate to the option grant.
Exercise price for options $40
Market price at grant date (January 1, 2014) $40
Fair value of options at grant date (January 1, 2014) $6
Service period 5 years
Instructions
(a) Prepare the journal entry(ies) for the first year of the share-option plan.
(b) Prepare the journal entry(ies) for the first year of the plan assuming that, rather than options, 700 shares of restricted shares were granted at the beginning of 2014.
(c) Now assume that the market price of Sarazan sha r es on the grant date was $45 per sha r e. Repeat the r equi r ements for (a) and (b).
(d) Sarazan would like to implement an employee sha r e-purchase plan for rank-and-file employees, but it would like to avoid recording expense related to this plan. Explain how employee sha r e-purchase plans a r e r eco r ded.