Question

On October 1, 2016, Farmer Fabrication issued stock options for 280,000 shares to a division manager....

On October 1, 2016, Farmer Fabrication issued stock options for 280,000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 2% in four years. Suppose that after one year, Farmer estimates that it is not probable that divisional revenue will increase by 2% in four years. 1. What is the revised estimate of the total compensation? 2. What action will be taken to account for the options in 2017? Farmer will reflect the cumulative effect on compensation in 2017 earnings. Farmer will reverse the 2016 recorded compensation.

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Part 1.

Fair value of total compensation

Number of stock options

280000

Estimated fair value of each option

5

Fair value of total compensation (280000 x 5)

1400000

The revised estimate of total compensation will be nil.

Part 2.

Since in 2017 it has become clear that it is improbable to achieve an increase of 2% in divisional revenue in four years and as it is the condition for the stock option hence, stock option compensation provided in 2016 of $1,400,000 will have to be reversed.

Thus, Farmer will reflect the cumulative effect on compensation in 2017 earnings and will revise the 2016 recorded compensation.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On October 1, 2018, Farmer Fabrication issued stock options for 400,000 shares to a division manager....
On October 1, 2018, Farmer Fabrication issued stock options for 400,000 shares to a division manager. The options have an estimated fair value of $7 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 4% in five years. Suppose that Farmer initially estimates that it is not probable the goal will be achieved, but then after one year, Farmer estimates that it is probable that divisional revenue will increase by 4%...
On October 1, 2018, Farmer Fabrication issued stock options for 400,000 shares to a division manager....
On October 1, 2018, Farmer Fabrication issued stock options for 400,000 shares to a division manager. The options have an estimated fair value of $7 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 4% in five years. Suppose that Farmer initially estimates that it is not probable the goal will be achieved, but then after one year, Farmer estimates that it is probable that divisional revenue will increase by 4%...
On January 1, 2021, Ace Co issued stock options for 340,000 shares to a division manager....
On January 1, 2021, Ace Co issued stock options for 340,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 5% in three years. Suppose that Ace Co initially estimates that it is not probable the goal will be achieved, but then after one year, Ace Co estimates that it is probable that divisional revenue will increase...
On January 1, 2020, Company A issued stock options for 828 shares to a executive. The...
On January 1, 2020, Company A issued stock options for 828 shares to a executive. The options have an estimated fair value of $9 each. To provide additional incentive for managerial achievement, the options are not exercisable unless Company A's stock price increases by 5% in six years. Company A initially estimates that it is not probably the goal will be achieved. How much compensation will be recorded in 2020? Group of answer choices $2,484 No compensation should be recorded...
On January 1, 2016, Adams-Meneke Corporation granted 60 million incentive stock options to division managers, each...
On January 1, 2016, Adams-Meneke Corporation granted 60 million incentive stock options to division managers, each permitting holders to purchase one share of the company’s $1 par common shares within the next six years, but not before December 31, 2018 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $44 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. Required:...
On January 1, 2016, Adams-Meneke Corporation granted 60 million incentive stock options to division managers, each...
On January 1, 2016, Adams-Meneke Corporation granted 60 million incentive stock options to division managers, each permitting holders to purchase one share of the company’s $1 par common shares within the next six years, but not before December 31, 2018 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $36 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. Required:...
Using the model proposed by Lafley and Charan, analyze how Apigee was able to drive innovation....
Using the model proposed by Lafley and Charan, analyze how Apigee was able to drive innovation. case:    W17400 APIGEE: PEOPLE MANAGEMENT PRACTICES AND THE CHALLENGE OF GROWTH Ranjeet Nambudiri, S. Ramnarayan, and Catherine Xavier wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT