Schmidt Electronics Offered an Incentive Stock Plan to Its Employees $\begin{array} { l l } \text { Deferred Compensation } & 54,000 \\\text { APIC - Stock Options } &&54,000\end{array}$

question 11

Multiple Choice

Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 90,000 options were granted for 90,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $3 based upon an option pricing model. At the end of the first year, it is expected that 100% of employees will exercise the options. By the end of Year 2, it is expected that only 80% of the options will be exercised. Assume that Schmidt chooses to adjust the fair value of the options for the estimated forfeitures.
What is the journal entry to recognize compensation expense and record the change in vesting probability in Year 2? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

• A)
• \(\begin{array} { l l }
• \text { Deferred Compensation } & 54,000 \\
• \text { APIC - Stock Options } &&54,000
• \end{array} \)
• B)
• \(\begin{array}{llcc}
• \text { Compensation Expense } & 90,000\\
• \text { Common Stock }&&90,000 \\
• \end{array}\)
• C)
• \(\begin{array} { l l }
• \text { Compensation Expense } & 54,000 \\
• \text { APIC - Stock Options } &&54,000
• \end{array} 54,000\)
• D)
• \(\begin{array} { l l }
• \text { APIC - Stock Options } & 54,000 \\
• \text { Deferred Compensation } && 54,000
• \end{array}\)

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Definitions:

Intrinsic Motivation

The motivation to participate in activities purely for the enjoyment and fulfillment obtained from the activity itself, rather than for any external incentives.

Extrinsic Motivation

Incentive that is fueled by outside gains like financial earnings, recognition, academic achievement, and commendation.

Performance

The level of achievement or output produced by an individual, group, or system.

Emotional Intelligence

The ability to recognize, understand, and manage one's own emotions as well as those of others.