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Wolmore Resources Ltd. is authorized to issue unlimited numbers of common shares, of which 43,800,000 have been

issued at an average price of $41 per share. On 1 January 20X3, when shares were trading for $34 per share, the company granted stock options to each of its 50 senior executives. The stock options provide that each individual will be eligible to purchase, no earlier than 31 December 20X7, 4,000 common shares at a base option price of $34 per share. The options are nontransferable, vest on 31 December 20X7, and expire on 31 December 20X8. Option pricing models indicate that the options have a total value of $640,000. Estimates of retention are:


End of Year 20X3 20X4 20X5 20X6 20X7 Employees expected to remain until vesting 35 (70%) 31 (62%) 32 (64%) 31 (62%) n/a Employees expected to forfeit 15 (30%) 19 (38%) 18 (36%) 19 (38%) n/a Employees actually forfeiting in the year 07200 Employees actually receiving options (50 − 18)   41 (82%) 

27 individuals who received the options exercised on 31 December 20X7, when the share price was $56. The remaining individuals did not exercise the options. The share price fell to $22 in 20X8, and the remaining options lapsed.


1. Prepare the entries to record the granting of the options, annual expense, exercise, and lapse.

a. Record the entry for annual compensation expense.

b.Record the entry for exercising the stock options.

c.Record the entry for lapse the stock options.


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