50. On January 1, 2018, Black Inc. issued stock options for 200,000 shares to a

Question

50. On January 1, 2018, Black Inc. issued stock options for 200,000 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 6% in three years. Black initially estimates that it is probable the goal will be achieved. In 2019, after one year, Black estimates that it is not probable that divisional revenue will increase by 6% in three years. Ignoring taxes, what is the effect on earnings in 2019?

Multiple Choice

$200,000 decrease.

$400,000 increase.

No effect.

$200,000 increase.

Explanation / Answer

Effect on earnings in 2019=(200000*6)/3 = $400000 increase Option 2 is correct

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