The SAS Co. granted on million employee stock options on June 30, 2006. Each option allowed the holder to buy one share of SAS common stock at $6, 00 per share, which was also the stock's selling price at that date. The options can be exercised any time after June 30, 2007.
The Company used Black Scholes option pricing model to estimate the fair value of the options at the grant date. That amount was $2 million. Assume the service period in one year, SAS has a 12/31 year-end, and its tax rate is 40%.
a) Under FAS 123R, how would this transaction be reported in SAS's 12/31/09 year-end financial statements( Balance sheet, Income statement, Cash flow statement)
b) Assume that 20 % of the options were terminated in January 2007 because certain employees had very recently left the company, Under FASB 123R, would these terminated options result in some sort of an adjustment? If there is an adjustment, please make the appropriate entry or entries?