AnnuG Inc Granted 200,000 Stock Options to Its Employees

question 68

Essay

AnnuG Inc. granted 200,000 stock options to its employees. The options expire 45 years after the grant date of January 1, 2021, when the share price was $23. Employees still employed by the company six years after the grant date may exercise the option to purchase shares at $45 each; that is, the options vest to the employees after six years. A consultant estimated the value of each option at the date of grant to be $2.50 each.
Required:
Record the journal entries relating to the issuance of stock options.

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Definitions:

Fixed Manufacturing Costs

Costs that remain constant regardless of the level of production or sales volume, such as rent and salaries.

Selling Commission

A fee paid to a sales agent or an employee based on the value of sales generated.

Contribution Margin

The amount remaining from sales revenue after variable production costs have been deducted, indicating how much contributes toward covering fixed costs and generating profit.

Contribution Format

A contribution format income statement categorizes costs as variable or fixed and calculates a contribution margin.