Question

LCI Cable Company grants 2.9 million performance stock options to key executives at January 1, 2021. The options entitle executives to receive 2.9 million of LCI $1 par common shares, subject to the achievement of specific financial goals over the next four years. Attainment of these goals is considered probable initially and throughout the service period. The options have a current fair value of $20 per option.

Prepare the appropriate entry when the options are awarded on January 1, 2021.

Answer 1

On the date of grant of options-January 1 2021 no entries are required yet in the books of accounts

Step-by-step explanation:

The value of the options granted to the key executives is computed as follows:

total options fair value=number of shares *current fair value per option

number of shares granted is 2.9 million

current fair value per option is $20

total options fair value=2,900,000*$20

=$58,000,000

the total options value would recognized in the books over four year period on straight line basis =$58,000,000/4

=$14,500,000

At 31 December 2021 for instance,the following entries would be passed:

Dr Compensation expense $4,500,000

Cr Paid-in capital-stock options $4,500,000

However, on the date of grant of options-January 1 2021 no entries are required yet in the books of accounts