Question

Under its executive stock option plan, National Corporation granted 20 million options on January 1, 2021, that permit executives to purchase 20 million of the company’s $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $23 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. Suppose that the options are exercised on April 3, 2024, when the market price is $25 per share.
Ignoring taxes, what journal entry will National record? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

Answer:

April 23, 2024

Dr Cash $460 million

Dr PIC Stock Options $100 million

($20 million*$5 per option)

Cr Common stock $20 million

C- PIC Excess of Par $540 million

Explanation:

Preparation of the journal entry that National will record

April 23, 2024

Dr Cash ($23 exercise price × 20 million shares) $460 million

Dr PIC Stock Options $100 million

($20 million*$5 per option)

Cr Common stock (20 million shares at $1 par per share) $20 million

C- PIC Excess of Par $540 million

($460 million+$100 million-$20 million)