Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation
Question:
Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2018, the company issued 440,000 executive stock options permitting executives to buy 440,000 shares of Pastner stock for $39 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2018 (graded vesting). Pastner elects to separate the total award into four groups (or tranches) according to the year in which they vest and measures the compensation cost for each vesting date as a separate award. The fair value of each tranche is estimated at January 1, 2018, as follows:
Vesting Date | Amount | Vesting Fair Value per Option |
---|---|---|
Dec. 31, 2018 | 25 % | $ 4.00 |
Dec. 31, 2019 | 25 % | $ 4.40 |
Dec. 31, 2020 | 25 % | $ 4.80 |
Dec. 31, 2021 | 25 % | $ 5.60 |
a. Determine the compensation expense related to the options to be recorded each year 2018-2021, assuming Pastner allocates the compensation cost for each of the four groups (tranches) separately.
b. Determine the compensation expense related to the options to be recorded each year 2018-2021, assuming Pastner uses the straight-line method to allocate the total compensation cost.
Intermediate Accounting
ISBN: 978-0078025839
9th edition
Authors: J. David Spiceland, James Sepe , Mark Nelson , Wayne Thomas