Alfonsio Corp

question 157

Essay

Alfonsio Corp.has an extensive stock option program for its employees.Prepare journal entries to record the following transactions:

a. On July 1, Year 1, Alfonsio issues 10,000 stock options to employees when the market price per share is $5. The option allows the holder the right to acquire shares at $6 per share. Par value of the common shares is $1.
b. On July 31, Year 1, 1,000 stock options previously granted when the market value per share was $4 expire.
c. On August 31, Year 1, 4,000 stock options were exercised when the market value per share was $5. The options allowed the holder to acquire the shares at $4 per share and the options were granted when the market price per share was $3.

---

Definitions:

Diversifiable Risk

The portion of an investment's risk that can be mitigated or eliminated through portfolio diversification.

Correlation Coefficient

A statistical measure that calculates the strength and direction of a linear relationship between two variables.

Covariance

A measure of how two variables move in relation to each other, used in finance to diversify portfolios and minimize risk.

Beta

A measure of a stock's volatility in relation to the overall market, indicating the level of risk associated with a particular investment.