Answer:
N. Corporation
The effect on earnings in the year after the options are granted to executives is a reduction in the net income by $16 million because of the Compensation Expense that will be recorded.
The journal entry on December 31, 2021 (a year after) is:
Debit Compensation Expense $16,000,000
Credit Stock Options $16,000,000
To record compensation expense.
Explanation:
a) Data and Calculations:
Options grant date = January 1, 2021
Options granted = 12.0 million shares
Options vesting date = December 31, 2023
There are 3 years before the vesting date
Fair value of the options = $4
Therefore, Total Compensation Expense = Options granted*Fair value per option
= 12,000,000 * $4
= $48,000,000
Annual compensation expense from 2021 to 2023 = $48,000,000/3
= $16,000,000
