【正文】 lated stock are sold separately and each have a separate price. Stock Rights Important Dates Chapter 1072 ? Stock rights issued to existing shareholders in advance of a new stock issuance. ? No entries required on announcement date or on issuance date of the rights. ? On exercise date ? debit Cash. ? credit Capital Stock and Additional Paidin Capital. Stock Rights Preemptive Rights Chapter 1073 ? Used to recruit and retain outstanding employees. encourage employee ownership. obtain additional capital from equity owners. ? Most critical accounting issue is whether the program causes additional expenses for the corporation (or grantor). Stock Compensation Plans Chapter 1074 New FASB standard requires panies to recognize pensation cost using the fairvalue method.* Under fairvalue method, panies use acceptable optionpricing models to value the options at the date of grant. Stock Compensation Plans *“ Accounting for StockBased Compensation,”Statement of Financial Accounting Standards No. 123 (Norwalk, Conn: FASB, 1995)。 and “ShareBased Payment,”Statement of Financial Accounting Standard No. 123(R) (Norwalk, Conn: FASB, 2022). Chapter 1075 ? Nonpensatory plans allow employees to purchase stock at a price that is not significantly lower than the current market price. ? Compensatory plans allow employees to purchase stock at a price that is significantly lower than the current market price at the measurement date. Stock Compensation Plans Chapter 1076 Criteria stated in APB Opinion No. 25 1. Includes substantially all fulltime employees meeting certain criteria. 2. Stock is offered to eligible employees either equally or on the basis of a uniform percentage of salary or wages. 3. Exercise time is limited to a reasonable period. 4. The discount from market price is not significant. Stock Options Nonpensatory Plans Chapter 1077 Criteria stated in FASB No. 123(R) 1. Substantially all fulltime employees participate on an equitable basis. 2. The discount from market is small. 3. The plan offers no substantive option feature. Stock Options Nonpensatory Plans Chapter 1078 ? Accounted for based on the cost principle. ? Record a liability at the time of issuance Valued at amount contributed by employees. ? On date of issuance of stock debit the liability. credit Capital Stock (for par value) and contributed capital. Stock Options Nonpensatory Plans Chapter 1079 ? Any plan that fails to meet one of the four criteria for nonpensatory plans is classified as a pensatory plan. ? The measurement date is the first date when the grantor knows the number of shares an employee is eligible to receive. the option price. Stock Options Compensatory Plans Chapter 1080 Determining Expense Compensation expense based on the fair value of the options expected to vest on the date the options are granted to the employee(s) (., the grant date). Allocating Compensation Expense Over the periods in which employees perform the service—the service period. Stock Options Compensatory Plans Chapter 1081 On January 1, 2022, Nichols Corporation granted 10,000 options to key executives. Each option allows the executive to purchase one share of Nichols’ $5 par value mon stock at a price of $20 per share. The options were exercisable within a 2year period beginning January 1, 2022, if the grantee is still employed by the pany at the time of the exercise. On the grant date, Nichols’ stock was trading at $25 per share, and a fair value optionpricing model determines total pensation to be $400,000. On May 1, 2022, 8,000 options were exercised when the market price of Nichols’ stock was $30 per share. The remaining options lapsed in 2022 because executives decided not to exercise their options. Stock Compensation Plans Example Chapter 1082 No entry on date of grant. Prepare the necessary journal entries related to the stock option plan for the years 2022 through 2022. 1/1/06 Compensation expense 200,000 Paidin capitalstock options 200,000 12/31/06 Compensation expense 200,000 Paidin capitalstock options 200,000 12/31/07 ($400,000 x 189。) Stock Compensation Plans Example Chapter 1083 Prepare the necessary journal entries related to the stock option plan for the years 2022 through 2022. Cash (8,000 x $20) 160,000 Common stock (8,000 x $5) 40,000 5/1/08 Paidin capitalstock options 80,000 Paidin capitalexpired options 80,000 1/1/10 ($400,000 x 8,000 / 10,000 = $320,000) Paidin capitalstock options 320,000 Paidin capital in excess of par 440,000 ($400,000 – $320,000) Stock Compensation Plans Example Chapter 1084 ? Requires the application of a plex pricing model. ? Variables include: Exercise price Current market price of the stock Riskfree rate of interest Expected life of the options Expected volatility of the stock price Expected dividend yield of the stock Measuring the Fair Value of Fixed Stock Options Chapter 1085 TCC = FV ? [ N (1 FR) SP]Total Compensation Cost Fair Value of an option Number of options Expected annual forfeiture rate Service Period Measuring the Fair Value of Fixed Stock Options Chapter 1086 ARE YOU STAYING ABOVE WATER? Chapter 1087 C hapter 10 Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.