Brief Exercise 19-10 Performance-based options [LO19-2] On October 1, 2018, Farmer Fabrication issued stock options for...

Brief Exercise 19-10 Performance-based options [LO19-2]

On October 1, 2018, 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 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 2% by the end of 2020.

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.

Expert Solution

Please let me know in case of any queries

ekkarill92 answered 8 months ago

On October 1, 2018, Farmer Fabrication issued stock options for 180,000 shares to a division manager....

On October 1, 2018, Farmer Fabrication issued stock options for 180,000 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 5% in four 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%...

On October 1, 2018, Farmer Fabrication issued stock options for 200,000 shares to a division manager....

On October 1, 2018, Farmer Fabrication 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 2% in four 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 2%...

Problem 19-1 (Algo) Stock options; forfeiture; exercise [LO19-2] On October 15, 2020, the board of directors...

Problem 19-1 (Algo) Stock options; forfeiture; exercise [LO19-2] On October 15, 2020, the board of directors of Ensor Materials Corporation approved a stock option plan for key executives. On January 1, 2021, 20 million stock options were granted, exercisable for 20 million shares of Ensor's $1 par common stock. The options are exercisable between January 1, 2024, and December 31, 2026, at 80% of the quoted market price on January 1, 2021, which was $15. The fair value of the...

On January 1, 2021, Farmer Fabrication issued stock options for 360,000 shares to a division manager....

On January 1, 2021, Farmer Fabrication issued stock options for 360,000 shares to a division manager. The options have an estimated fair value of $8 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 2% in three 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 2%...

Exercise 19-8 (Algo) Stock options exercise; expirations [LO19-2] Walters Audio Visual Inc. offers an incentive stock...

Exercise 19-8 (Algo) Stock options exercise; expirations [LO19-2] Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2021, options were granted for 64 million $1 par common shares. The exercise price is the market price on the grant date—$6 per share. Options cannot be exercised prior to January 1, 2023, and expire December 31, 2027. The fair value of the 64 million options, estimated by an appropriate option pricing model, is $1...

Exercise 19-8 Stock options exercise; expirations [LO19-2] Walters Audio Visual Inc. offers an incentive stock option...

Exercise 19-8 Stock options exercise; expirations [LO19-2] Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2018, options were granted for 36 million $1 par common shares. The exercise price is the market price on the grant date—$10 per share. Options cannot be exercised prior to January 1, 2020, and expire December 31, 2024. The fair value of the 36 million options, estimated by an appropriate option pricing model, is $1 per...

Exercise 19-9 (Algo) Stock options; exercise [LO19-2] SSG Cycles manufactures and distributes motorcycle parts and supplies....

Exercise 19-9 (Algo) Stock options; exercise [LO19-2] SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 23 million of the company’s $1 par common shares for $12 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the...

Problem 19-19 EPS; options; restricted stock; additional components for "proceeds" in treasury stock method [LO19-1, 19-2,...

Problem 19-19 EPS; options; restricted stock; additional components for "proceeds" in treasury stock method [LO19-1, 19-2, 19-4, 19-8, 19-11] Witter House is a calendar-year firm with 430 million common shares outstanding throughout 2018 and 2019. As part of its executive compensation plan, at January 1, 2017, the company had issued 60 million executive stock options permitting executives to buy 60 million shares of stock for $12 within the next eight years, but not prior to January 1, 2020. The fair...

Exercise 19-17 (Algo) EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold; stock options [LO19-5,...

Exercise 19-17 (Algo) EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold; stock options [LO19-5, 19-6, 19-7, 19-8] On December 31, 2020, Berclair Inc. had 320 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 72 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold...

Exercise 19-18 EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold; stock options exercised [LO19-5,...

Exercise 19-18 EPS; stock dividend; nonconvertible preferred stock; treasury shares; shares sold; stock options exercised [LO19-5, 19-6, 19-7, 19-8] On December 31, 2017, Berclair Inc. had 400 million shares of common stock and 8 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 60 million shares of its common stock as treasury stock. Berclair issued a 6% common stock dividend on July 1, 2018. Four million treasury shares were sold...

Question