The Santiago Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2013, that permit executives to acquire 70 million of the company's $1 par value common shares within the next eight years, but not before December 31, 2016 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $27 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the options.
2. Prepare the appropriate journal entry (if any) to record the award of options on January 1, 2013.
3. Prepare the appropriate journal entry (if any) to record compensation expense on December 31, 2013.

Question

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The Answer of The Santiago Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2013, that permit executives to acquire 70 million of the company's $1 par value common shares within the next eight years, but not before December 31, 2016 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $27 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. Ignore taxes.
Required:
1. Determine the total compensation cost pertaining to the options.
2. Prepare the appropriate journal entry (if any) to record the award of options on January 1, 2013.
3. Prepare the appropriate journal entry (if any) to record compensation expense on December 31, 2013.

The Santiago Corporation Provides an Executive Stock Option Plan