Problem
On January 1, 2022, Virginia Beach Transportation Company granted 80,000 incentive stock options to all the employees, each permitting holders to purchase TWO share of the company's $2 par common shares within the next seven years, but not before December 31, 2025 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $8 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. Management's policy is to estimate forfeitures. No forfeitures are anticipated. Ignore taxes.
A. Determine the total compensation cost pertaining to the options on January 1, 2022.
B. Prepare the appropriate journal entry to record compensation expense on December 31, 2022, and December 31, 2023.
C. Unexpected turnover during 2024 caused an estimate of the forfeiture of 5% of the stock options. Prepare the appropriate journal entry(s) on December 31, 2023, 2024, and 2025 in response to the new estimate.
a. Entry on December 31, 2024:
b. Entry on December 31, 2025:
D. On June 30, 2026, 80% of stock options were exercised by employees when stock market price was $10. Prepare the appropriate journal entry.
E. Till December 31, 2028, the remaining 20% of stock options were not exercised. Prepare the appropriate journal entry at the end of 2028.