Answer:
Total Compensation is $60 million
On December 31, 2018, 2019 and 2020
Dr. Compensation Expense $20 million
Cr. Paid-in Capital – stock options $20 million
April 3, 2021
Dr. Paid-in Capital – stock options $20 million
Cr. Common Stock (12 million x $1) $12 million
Cr. Paid-in Capital – stock options $8 million
Explanation:
Stock option is a type compensation which is given to the employees and executives of the company. It requires some some obligation to be performed by the employee to exercise.
Fair value at grant date = $5
Number of option granted = 12 million
Total Compensation = Fair value at grant date x Number of option granted = $5 x 12 million = $60 million
This compensation will be expensed over vesting period of 3 years.
Expense each year = $60 million / 3 = $20 million per year.
No Entry is required on grant date. Fair market value of the option is calculated on this date.
On December 31, 2018, 2019 and 2020 The expense will be recorded.
