On October 1, 2016, Farmer Fabrication issued stock options for 120,000 shares t
ID: 2596756 • Letter: O
Question
On October 1, 2016, Farmer Fabrication issued stock options for 120,000 shares to a division manager. The options have an estimated fair value of $4 each. To provide additional incentive for managerial achievement, the options are not exercisable unless Farmer Fabrication’s stock price increases by 2% in three years. Farmer initially estimates that it is not probable the goal will be achieved.
On October 1, 2016, Farmer Fabrication issued stock options for 120,000 shares to a division manager. The options have an estimated fair value of $4 each. To provide additional incentive for managerial achievement, the options are not exercisable unless Farmer Fabrication’s stock price increases by 2% in three years. Farmer initially estimates that it is not probable the goal will be achieved.
Explanation / Answer
Compensation expense in each of the next three years = (120000*4)/3= 160000
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