Connect CSecure https//newconnect.mheducation.com/flow/connect.html Ch. 19 - Bri

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Connect CSecure https//newconnect.mheducation.com/flow/connect.html Ch. 19 - Brief Exercises (80 minutes) Help Save & Exlt Submlt Saved 3 Check my work 10 Brief Exercise 19-10 Performance-based options [L019-2] On October 1, 2018, Farmer Fabrication issued stock options for 420,000 shares to a division manager. The options have an estimated fair value of $9 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 5% 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 5% by the end of 2020. 6.25 points eBook References Required: 1. What is the revised estimate of the total compensation? 2. What action will be taken to account for the options in 2019? 3. Prepare the journal entries to record compensation expense in 2019 and 2020 Complete this question by entering your answers in the tabs below Req i and 2 Req 3 Mc Graw Hill ?Prex 10 or 16 ? Next> ???@) a e ^??4, 4/17/2018 8-34 PM |

Explanation / Answer

a) Number of stock options 420000 Fair value 9 Total compensation 3780000 b) As it is possible to achieve more than 5% so the compensation expense will be recorded c) Journal entries 2019 Compensation expense 945000 (3780000/4)                 Paid in capital - stock option 945000 2020 Compensation expense 945000 (3780000/4)                 Paid in capital - stock option 945000

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