Answer:
Pastner Brands
a. Compensation expense related to the options to be recorded each year, allocated with separate tranches:
Vesting Date Amount Vesting Fair Value Compensation
per Option Expense
Dec. 31, 2018 25% = 80,000 $4.00 $320,000
Dec. 31, 2019 25% = 80,000 $4.40 352,000
Dec. 31, 2020 25% = 80,000 $4.80 384,000
Dec. 31, 2021 25% = 80,000 $5.60 448,000
Total 100% 320,000 $1,504,000
b. Compensation expense related to the options, allocated using the straight-line method:
= $376,000
Explanation:
a) Data and Calculations:
Executive stock options issued = 320,000
Options exercise price = $28 per share
Number of tranches for the options = 4
Number of options exercisable in each tranche = 80,000
Vesting Date Amount Vesting Fair Value Compensation
per Option Expense
Dec. 31, 2018 25% = 80,000 $4.00 $320,000 (80,000 * $4.00)
Dec. 31, 2019 25% = 80,000 $4.40 352,000 (80,000 * $4.40)
Dec. 31, 2020 25% = 80,000 $4.80 384,000 (80,000 * $4.80)
Dec. 31, 2021 25% = 80,000 $5.60 448,000 (80,000 * $5.60)
Total 100% 320,000 $1,504,000
Compensation expense, using the straight-line method = $376,000 ($1,504,000/4)
