Question

Yellow Company is a calendar-year firm with operations in several countries. At January 1, 2021, the...

Yellow Company is a calendar-year firm with operations in several countries. At January 1, 2021, the company had issued 43,000 executive stock options permitting executives to buy 43,000 shares of stock for $33. The vesting schedule is 20% the first year, 20% the second year, and 60% the third year (graded-vesting). The fair value of the options is estimated as follows:

Vesting Date Amount
Vesting
Fair Value
per Option
Dec. 31, 2021 20 % $ 6
Dec. 31, 2022 20 % $ 7
Dec. 31, 2023 60 % $ 9


Assuming Yellow prepares its financial statements in accordance with International Financial Reporting Standards (IFRS), what is the compensation expense related to the options to be recorded in 2022?

Homework Answers

Answer #1

Answer:

The cost for the year is recognized when the vesting of options takes place.

In this question, 20% vesting takes place in 2022, hence, compensation expense of 20% stock options would be booked in 2022.

Total no. of options granted = 43,000

% vesting in 2022 = 20%

No. of shares vested in 2022 = 43,000 X 20% = 8,600

Fair value expenses of options on Dec 31, 2022 = $7 per option

Hence,

total compensation expenses to be booked = No. of options vested X Fair value per option

total compensation expenses to be booked = $8,600 X $7

total compensation expenses to be booked  = $60,200.

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