Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to...

Murray Compensation, Inc. (Murray), an SEC registrant that provides payroll processing and benefit administration services to other companies, granted 100,000 “at-the-money” employee share options on January 1, 2010 . The awards have a grant-date fair value of $6, vest at the end of the third year of service (cliff-vesting), and have an exercise price of $21. Subsequent to the awards being granted, the stock price has fallen significantly. On January 1, 2012 , Murray decreased the exercise price on the stock options to $12. This downward adjustment to the exercise price was made in order to ensure that the options continue to provide intended motivational benefit to employees. However, in addition to the reduction in the exercise price, Murray also changed the vesting terms, such that the employees must provide an additional two years of service (awards will now vest on January 1, 2015). Immediately prior to the reduction in the exercise price of the awards, the fair value was $1 per award. After considering the impact of the January 1, 2012, re-pricing, the fair value was $4 per award.

How much compensation expense should be record each year before 2012?

How does decreasing exercise price impact on the fair value of stock option?

Solutions

Expert Solution

Employee Share Options		100000 Share options each to Employees
Grant Date	January 01 2010
FV on Grant Date	6 $
Let Suppose 01 Employee
Exercise Price on Third year is		21 $
Exercise price Fallen down
The Fair value Change ( 4 $ - 1 $ ) = 3 $ repricing

For Year	December Ended 2010	December Ended 2011	December Ended 2012
	100000 Share Options X 6 $	100000 Share Options X 6 $	100000 Share Options X 6 $ + 100000 X ( 4$ -1 $)
Expenses	100000 Share Options X 6 $ X 1/ 3	100000 Share Options X 6 $ X 2/ 3	100000 Share Options X 6 $ X 3/ 5
	Shall be Valued accordingly	Shall be Valued accordingly	Shall be Valued Accorindingly as, re pricing shall be followed prospectively for balance period.
	as Settlement is made in Cash Basis.	as Settlement is made in Cash Basis.	Modification should be treated and applied prospectovely .
	Shall be Revalued at Fair Value at Year End	Shall be Revalued at Fair Value at Year End	Shall be Revalued at Fair Value at Year End
Change in Repricing	-	-	100000 X ( 4 $ -1 $ ) X 1/ 3 = 100000 per year
Opening Balance	-	200000	400000
to be Charged During the Year	200000	200000	460000
Balance to be Charged	200000	200000	60000

Decrease in the Exercei price has impacted increase in the employee cost of the Company over the balnce period .

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

ABC Inc. ABC Inc. (“ABC” or “the Company”), an SEC registrant, is a retailer that sells...

ABC Inc. ABC Inc. (“ABC” or “the Company”), an SEC registrant, is a retailer that sells men’s and women’s clothing and accessories. As an incentive to its employees, the Company established a compensation incentive plan in which a total of 100,000 options were granted on January 1, 20X1. On that date (the grant date), ABC’s stock price was $15.00 per share. The significant terms of the incentive plan are as follows: The options have a $15.00 “strike” or exercise price...

Why did the SEC ban certain non-audit services from being offered to SEC-registrant audit clients even...

Why did the SEC ban certain non-audit services from being offered to SEC-registrant audit clients even though it has been possible to effectively manage such conflict of interest situations?

Fashion Inc. (“Fashion” or “the Company”), an SEC registrant, is a fashion retailer that sells men’s...

Fashion Inc. (“Fashion” or “the Company”), an SEC registrant, is a fashion retailer that sells men’s and women’s clothing and accessories. As an incentive to its employees, the Company established a compensation incentive plan in which a total of 100,000 options were granted on January 1, 20X0. On that date (the grant date), Fashion’s stock price was $15.00 per share. The significant terms of the incentive plan are as follows: The options have a $15.00 “strike” or exercise price (the...

Fashion Inc. (“Fashion” or “the Company”), an SEC registrant, is a fashion retailer that sells men’s...

Fashion Inc. (“Fashion” or “the Company”), an SEC registrant, is a fashion retailer that sells men’s and women’s clothing and accessories. As an incentive to its employees, the Company established a compensation incentive plan in which a total of 100,000 options were granted on January 1, 2020. On that date (the grant date), Fashion’s stock price was $15.00 per share. The significant terms of the incentive plan are as follows: The options have a $15.00 “strike” or exercise price (the...

Case 08-7: Data Trappers, Inc. Data Trappers, Inc. (DTI) is an SEC registrant headquartered in Seattle,...

Case 08-7: Data Trappers, Inc. Data Trappers, Inc. (DTI) is an SEC registrant headquartered in Seattle, Washington. DTI delivers security solutions to assist companies in monitoring their systems, managing information security risk, and maintaining robust information security programs. Their computer software offerings encompass network and information security, network operations, cryptography, and privacy, among others. As a global organization with subsidiaries in 23 countries, DTI is served by more than 2,000 employees worldwide. Sales for the fiscal year ended June 30,...

Salt Lake City Services, Inc., provides maintenance services for commercial buildings. Currently, the beta on its...

Salt Lake City Services, Inc., provides maintenance services for commercial buildings. Currently, the beta on its common stock is 1.08. The risk-free rate is now 10 percent, and the expected return on the market portfolio is 15 percent. It is January 1, and the company is expected to pay a $2 per share dividend at the end of the year, and the dividend is expected to grow at a compound annual rate of 11 percent for many years to come....

Part 1 Lynbrook, Inc. has decided to begin processing monthly payroll transactions “in house”, rather than...

Part 1 Lynbrook, Inc. has decided to begin processing monthly payroll transactions “in house”, rather than using a Payroll Service Company, like ADP. On January 25, 2019, the end of the first monthly pay period of the year, Lynbrook’s payroll register showed that employees earned $22,000 of office salaries and $60,000 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $12,860 of federal...

Rae Services, Inc. provides healthcare diagnostics for patients with autoimmune diseases. At the end of their...

Rae Services, Inc. provides healthcare diagnostics for patients with autoimmune diseases. At the end of their first year of operations, Rae Services account balances are shown in the adjusted trial balance shown below: Rae Services, Inc. Adjusted Trial Balance December 31, 2012 Cash 176,000 Accounts receivable 139,000 Supplies 4,500 Prepaid insurance 2,600 Equipment 88,700 Accumulated depreciation--Equipment 3,400 Accounts payable 67,500 Common stock 250,000 Retained earnings 125,000 Dividends 65,000 Service revenue 214,507 Advertising expense 2,500 Depreciation expense--Equipment 3,400 Insurance expense 1,000...

ABC, Inc. provides its employees with a defined benefit pension plan. In 2020, the company made...

ABC, Inc. provides its employees with a defined benefit pension plan. In 2020, the company made the mistake of not amortizing the cost of prior period services (PSC). Which of the following statements is correct? a. Total equity is underestimated. b. The company's net income is overstated. c. Total debt is overstated. d. The company's net income is underestimated.

AOG Inc. provides a defined benefit plan for its employees, and reports using ASPE. The pension...

AOG Inc. provides a defined benefit plan for its employees, and reports using ASPE. The pension plan administrator for AOG Inc. provided the following information for the year ended December 31, 2020 Fair value of plan assets, January 1.................................. 820,000 Defined benefit obligation, January 1.............................. 760,000 Current service cost......................................................... 60,000 Employer contributions.................................................. 85,000 Benefits paid to retirees................................................... 50,000 Actuarial Gain…………………………………………………. 25,000 Actual return................................................................... 5% Interest (discount) rate.................................................... 6% Required: a.) What is the fair value of the plan assets at December 31,...

Subjects