On January 1, 2012, Legoria Co. grants options that permit key executives to acquire 10 million of the company’s $1 par common stock within the next eight years, but not before December 31, 2015 [the vesting date]. The exercise price is the market price of the shares on the date of the grant, $35 per share. The fair value of the options, estimated by an appropriate option pricing model, is $8 per option.
1. Prepare the journal entry at the Grant Date, 1/1/2012.
2. Prepare the journal entries that would be recorded over the service period by Legoria Co.
3. On July 11, 2016, 8 million of the options are exercised when the market price of Legoria Co’s stock is $50 per share. Prepare the journal entry for the exercise of these options.
4. On January 1, 2020, 2 million options expired. Prepare the entry for the 2 million options that expired without being exercised.