JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, JBL granted options to key officers on January 1, 2024 . The options permit holders to acquire 6 million of the company's $1 par common shares for $30 within the next six years, but not before January 1, 2027 (the vesting date). The market price of the shares on the date of grant is $34 per share. The fair value of the 6 million options, estimated by an appropriate option pricing model, is $7 per option. Because the plan does not qualify as an Incentive plan, JBL will receive a tax deduction upon exercise of the options equal to the excess of the market price at exercise over the exercise price. The tax rate is 25%. Required: 1. Determine the total compensation cost pertaining to the Incentive stock option plan. 2. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2024, 2025, and 2026. 3. Record the exercise of the options and their tax effect if all of the options are exercised on August 21, 2028, when the market price is $35 per share. Complete this question by entering your answers in the tabs below. Req 1 Req 2 and 3 Determine the total compensation cost pertaining to the incentive stock option plan. Note: Enter your answer in millions (i.e., 10,000,000 should be entered as 10). Total compensation cost million
JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, JBL granted options to key officers on January 1, 2024 . The options permit holders to acquire 6 million of the company's $1 par common shares for $30 within the next six years, but not before January 1, 2027 (the vesting date). The market price of the shares on the date of grant is $34 per share. The fair value of the 6 million options, estimated by an appropriate option pricing model, is $7 per option. Because the plan does not qualify as an Incentive plan, JBL will receive a tax deduction upon exercise of the options equal to the excess of the market price at exercise over the exercise price. The tax rate is 25%. Required: 1. Determine the total compensation cost pertaining to the Incentive stock option plan. 2. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2024, 2025, and 2026. 3. Record the exercise of the options and their tax effect if all of the options are exercised on August 21, 2028, when the market price is $35 per share. Complete this question by entering your answers in the tabs below. Req 1 Req 2 and 3 Determine the total compensation cost pertaining to the incentive stock option plan. Note: Enter your answer in millions (i.e., 10,000,000 should be entered as 10). Total compensation cost million
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter15: Contributed Capital
Section: Chapter Questions
Problem 7E
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Transcribed Image Text:JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based compensation
plans. Under its nonqualified stock option plan, JBL granted options to key officers on January 1, 2024
. The options permit holders to acquire 6 million of the company's $1 par common shares for $30 within the next six years, but not
before January 1, 2027 (the vesting date).
The market price of the shares on the date of grant is $34 per share.
The fair value of the 6 million options, estimated by an appropriate option pricing model, is $7 per option.
Because the plan does not qualify as an Incentive plan, JBL will receive a tax deduction upon exercise of the options equal to the
excess of the market price at exercise over the exercise price.
The tax rate is 25%.
Required:
1. Determine the total compensation cost pertaining to the Incentive stock option plan.
2. Prepare the appropriate journal entries to record compensation expense and its tax effect on December 31, 2024, 2025, and
2026.
3. Record the exercise of the options and their tax effect if all of the options are exercised on August 21, 2028, when the market
price is $35 per share.
Complete this question by entering your answers in the tabs below.
Req 1
Req 2 and 3
Determine the total compensation cost pertaining to the incentive stock option plan.
Note: Enter your answer in millions (i.e., 10,000,000 should be entered as 10).
Total compensation cost
million
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