On January 1, 2021, Adams-Meneke Corporation granted 60 million incentive stock options to division managers, each permitting holders to purchase one share of the company's $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $44 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. Management's policy is to estimate forfeitures. No forfeitures are anticipated. Ignore taxes.

1) Determine the total compensation cost pertaining to the options on January 1, 2021

Total Compensation cost on January 1, 2021 = Number. of Stock options * Fair Value of Option

Given that:

Adams-Meneke Corporation granted 60 million incentive stock options to division managers

and there is a $5 per option estimated pricing model

Then:

Total Compensation cost on January 1, 2021 = 60,000,000 * 5

= 300,000,000

= 300 million vested over three years.

2) Prepare the appropriate journal entry to record compensation expense on December 31, 2021.

Compensation expense for 2021 = 300 million / 3 years = $100 million

The Journal entry amount in dollars is as follows:

Date Account Titles and Explanations Debit Credit

Dec 31st, 2021 Compensation Expense 100

Paid in Capital-Restricted Stock 100

(To record compensation expense

for 2021)