Assume That on January 1st, 20x1, Jane Smith Is Awarded

question 9

Essay

Assume that on January 1st, 20x1, Jane Smith is awarded units in an existing Phantom Stock Plan whereby she can receive either 20,000 common shares or a cash payout equivalent to the value of 15,000 shares at the time.
The shares are worth $5 each upon the inception of the plan.The value of the shares rose to $8 and
$10 each at the end of 20x1 and 20x2 respectively.
Option valuation models valued the company's stock at $6 per share on January 1st, 20x1.
Jane is her company's only full-time employee currently eligible under this plan and she has signed a non-competition agreement which essentially forbids her from seeking employment elsewhere.
Required:
Provide the company's journal entries to record compensation expense for 20x1 and 20x2 and provid the necessary journal entries assuming that Jane:
a.Elects to receive shares and
b.Opts for the cash payment, allowing her options to expire.

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