Merck & Co., Inc., reported net income attributable to Merck & Co., Inc., of $2,394 million for the 2017 fiscal year. Its 2017 10-K report contained the following information regarding its stock options.
Employee stock options are granted to purchase shares of Company stock at the fair market value at the time of grant. These awards generally vest one-third each year over a three-year period, with a contractual term of 7-10 years. The weighted average exercise price of options granted in 2017 was $63.88 per option. The weighted average fair value of options granted in 2017 was $7.04 per option.
a. Merck granted 4,232,000 options to employees in 2017. Using a journal entry, show how the stock option grants would be recorded in 2017. (Assume all grants took place on January 1, 2017.)
b. How does the granting of stock options affect EPS?
c. Merck employees exercised 11,512,000 options in 2017, paying a total of $499 million in cash to the company. Using a summary journal entry, show how these option exercises would be recorded in 2017.
d. How does the exercise of stock options affect EPS’?
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