Refer to the situation described in P 19-2. Assume Pastner measures the fair value of all options on January 1, 2018, to be $4.50 per option using a single weighted-average expected life of the options assumption.

P 19 -2

Vesting Date....................... Amount Vesting ...............Fair Value per Option

Dec. 31, 2018 .....................................25% ...............................$3.50

Dec. 31, 2019 .....................................25% .................................$4.00

Dec. 31, 2020..................................... 25% .................................$4.50

Dec. 31, 2021 ......................................25% .................................$5.00

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.