Final answer:
1. The stock option measurement date for Martinez is January 1, 2024. 2. The compensation expense for the stock option plan in 2024 is $150 million. 3. Forfeited stock options have a negative impact on the number of outstanding options but do not result in compensation expense. 4. The journal entry to account for the exercise of options in 2028 involves increasing common stock and additional paid-in capital while reducing stock options exercised.
Step-by-step explanation:
1. Martinez's stock option measurement date: The stock option measurement date is the date on which the fair value of the stock options is determined. In this case, it is January 1, 2024.
2. Compensation expense for the stock option plan in 2024: To determine the compensation expense, we need to multiply the fair value of each option ($5) by the number of options granted (30 million). The compensation expense for the stock option plan in 2024 is $150 million.
3. Effect of forfeiture of stock options: In 2025, 3 million options were forfeited due to an executive resignation. To reflect this on the financial statements, we need to reduce the number of outstanding options by 3 million. No compensation expense is recorded for forfeited options. In 2026, no options were forfeited, so the number of outstanding options remains the same.
4. Journal entry for exercise of options in 2028: When the options are exercised in 2028, the company needs to record an increase in common stock and additional paid-in capital. The journal entry to account for the exercise of the options would be:
Debit: Common Stock (30 million shares x $1 par value) $30 million
Debit: Additional Paid-in Capital (30 million shares x [$30 - $1]) $870 million
Credit: Stock Options Exercised $900 million