In: Accounting
Pastner Brands is a calendar-year firm with operations in
several countries. As part of its executive compensation plan, at
January 1, 2018, the company issued 320,000 executive stock options
permitting executives to buy 320,000 shares of Pastner stock for
$29 per share. One-fourth of the options vest in each of the next
four years beginning at December 31, 2018 (graded vesting). Pastner
elects to measure the fair value of all options on January 1, 2018,
to be $6.60 per option (tranche) using a single weighted-average
expected life of the options assumption.
Required:
1. Determine the compensation expense related to
the options to be recorded each year 2018–2021, assuming Pastner
allocates the compensation cost for each of the four groups
(tranches) separately.
2. Determine the compensation expense related to
the options to be recorded each year 2018–2021, assuming Pastner
uses the straight-line method to allocate the total compensation
cost.
Answer is attached below
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