Stock Options
On December 30, 2014, Yang Corporation granted compensatory stock options for 5,000 shares of its $1 par value common stock to certain of its key employees. The options may be exercised after 2 years of employment. Market price of the common stock on that date was $30 per share and the option price was $30 per share. Using a fair value option pricing model, total compensation expense is determined to be $80,000. The options are exercisable beginning January 1, 2017, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on January 1, 2018.
Instructions:
Prepare the following selected journal entries for the company on the answer sheet (if no entry required, state "no entry").
(1) December 30, 2014.
(2) December 31, 2015.
(3) January 1, 2017, assuming 90% of the options were exercised at that date.
(4) January 1, 2018, for the 10% of the options that expired.

Answer:

Date               Account Titles                         Debit         Credit

Dec 30, 14     No entry on Grant Date

Dec 30, 15     Compensation expense        $40000

                             Paid in capital- stock options           $40000

Dec 30, 16     Compensation expenses       $40000

                            Paid in capital- stock options            $40000

Jan 1, 17         Cash (30*5000*90%)             $135000

                            Paid in capital- stock options            $72000

                            (80000*90%)

                            Common stock (5000*90%*1)           $4500

                            Paid in capital                                     $202500

Jan 1, 18         Paid in capital- stock options  $8000

                          Paid in capital- expired stock options  $8000

Milliken Company paid $3.00 million to purchase stock in another company, $1.40 million to repurchase treasury shares, $1.50 million to buy short-term investments, sold used equipment for $0.84 million when its book value was $1.20 million, and purchased new equipment for $3.8 million. What was the net cash flow from investing activities

Suppose that Perry and Taimur both produce poems and novels. Perry’s productive capabilities are as follows. He can produce 12 poems if he spends all of his time writing poems or he can write 2 novels if he spends all of his time writing novels. He can also produce any linear combination in between. Taimur’s productive capabilities are as follows. He can produce 12 poems if he spends all of his time writing poems or he can write 4 novels if he spends all of his time writing novels. He can also produce any linear combination in between.
A. Which person can produce poems at lower opportunity cost? Explain. Which person can produce novels at a lower opportunity cost? Explain.
B. Suppose that Perry and Taimur make the following deal. Perry will spend all of his time making poems and Taimur will spend all of his time making novels. Taimur will then send 1 novel to Perry and in return Perry will send Taimur 4 poems. How many poems and novels will Perry have after this trade? How may poems and novels will Taimur have after this trade?
C. I claim that after trading with Taimur, Perry can now consume a combination of poems and novels that he never could have produced for himself. Likewise, Taimur can now consume a combination of poems and novels that he never could have produced for himself after trading with Perry. Use equations and a couple of simple calculations to demonstrate that I am correct.
D. What do you think is going on here? Why can both Perry and Taimur now consume a quantity of goods that they never could have produced for themselves?