Globe Corporation, a new environmental control company, initiated a performance-based stock option plan for its management on

Question:

Globe Corporation, a new environmental control company, initiated a performance-based stock option plan for its management on January 1, 2012. The plan provided for the granting of a variable number of stock options to management personnel who worked for the entire 4-year period ending December 31, 2015, depending on the net income earned by the company in 2015. No options were granted for the first $50,000 of net income.
Thereafter, the following options were available based on the level of net income in 2015.
$50,000-$99,999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 stock options
$100,000-$124,999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000 stock options
$125,000-$149,999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,000 stock options
$150,000 or more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 stock options
The exercise price for the $5 par common stock was $20 per share. The fair value of the options on the grant date was $9.
Assume the market price for the Globe stock and Globe's forecasted 2015 net income were as follows at each of the following dates:
.................................................................Stock Price...........Forecasted 2015 Income
January 1, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . $24...............................$120,000
December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . 31.................................140,000
December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . 26.................................170,000
December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . 32.................................135,000
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . 33............................... 145,000 (actual)
Instructions:
Prepare journal entries related to the stock options of Globe for the period 2012-2015 assuming that all available options are exercised on December 31, 2015.
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
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Intermediate Accounting

ISBN: 978-0538479738

18th edition

Authors: Earl K. Stice, James D. Stice

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