On January 1, 2016, Asquith Company Adopts a Performance-Based Stock

question 36

Essay

On January 1, 2016, Asquith Company adopts a performance-based stock option plan with a four-year vesting and service period, a $35 exercise price, and a $6 per option fair value. The plan grants a maximum of 2,000 shares of $5 par common stock to each of the company's 30 executives. The number of shares that vest depends on the increase in sales during the service period, based on the following scale: Asquith estimates that sales will increase by 12% during the service period. The estimate is achieved and all options are exercised on January 1, 2020.
Required:
Assuming Asquith uses the fair value method to account for its stock option plan, prepare all of the journal entries over the life of Asquith's stock option plan 2016 through 2020).

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Definitions:

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal installments.

Mutually Exclusive

A statistical term describing two or more events that cannot occur simultaneously.

Salvage Value

The estimated residual value of an asset at the end of its useful life, important for depreciation calculations.

Internal Rate Of Return (IRR)

The discount rate that makes the NPV of an investment zero.