Heidi Software Corporation provides a variety of share-based
compensation plans to its employees. Under its executive stock
option plan, the company granted options on January 1, 2021, that
permit executives to acquire 4 million of the company’s $1 par
common shares within the next five years, but not before
December 31, 2022 (vesting date). The exercise price is the
market price of the shares on the date of the grant, $14 per share.
The fair value of the 4 million options, estimated by an appropriate
pricing model is $3 per option. No forfeitures are anticipated.
Ignore taxes.
Part 1: Determine the total compensation cost pertaining to the
options.
# of options granted 4 million
Fair value of each option x $ 3
Total compensation $12 millionPart 2: Prepare the appropriate journal entry to record the award
of options on January 1, 2021.
No entry
Part 3: Prepare the appropriate journal entry to record
compensation expense on December 31, 2021.
Compensation expense ($12 million ÷ 2) 6
Paid in capital – stock options 6
Part 4: Prepare the appropriate journal entry to record
compensation expense on December 31, 2022.
Compensation expense ($12 million ÷ 2) 6
Paid in capital – stock options 6