Answer:
Dr Cash $3,268,000.00
Dr Compensation expense $532,000.00
Cr Common stock equity($1*95,000) $95,000
Cr paid-in capital in excess of par($40-$1)*95,000 $3,705,000
Explanation:
The cash received from employees as a result of the options is computed thus:
cash proceeds from options=$40*(1-14%)*95,000
=$40*(1-0.14)*95,000
=$40*0.86*95,000
=$3,268,000.00
The 14% discount on share price is to be treated as compensation expense as shown thus:
discount (compensation expense)=14%*$40*95,000
=$532,000.00
The appropriate entries would to debit cash with $3,268,000.00 as the increase in cash flows and debit of $532,000 to compensation expense.
The credit would be shown in common stock equity and paid-in capital in excess of par
