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Fashion Inc. ("Fashion" or "the Company"), an SEC registrant, is a fashion retailer that sellsmen's and women's clothing and accessories. As an incentive to its employees, the Companyestablished a compensation incentive plan in which a total of 100,000 options were granted onJanuary 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 price the employee would pay topurchase a share of stock if the options vest). « For the options to vest, the following must occur: o The employee must continue to provide service to the Company throughout the entire explicit service period of five years (i.e., a five-year "cliff-vesting" award). o The Company must achieve annual sales of at least $20 million during the fifth year of the explicit service period. In addition, if the Company achieves sales of at least $25 million during the fifth year of the explicit vesting period, the strike price of the options will decrease from $15 to $10. « The options expire after 10 years following the grant date. « The options are classified as equity awards. Additional Facts: « Assume it is probable at all times that 100 percent of the employees receiving the awardswill continue providing service to the Company as employees for the entire five-year explicit service period and that the five-year explicit service period is determined to be the requisite service period. « On the grant date, Fashion's management determined that it is probable that theCompany's sales in year 5 will be $30 million, and therefore it is probable on the grant date that sales are greater than or equal to at least $25 million. « The grant-date fair value of the options assuming a strike price of $15 is $8 per option.The grant-date fair value assuming a strike price of $10 per option is $12 per option.Required: 1. What types of conditions are present in the plan for the vesting of the units? Are theyservice, performance, market, or "other" conditions? 2. As described above, on January 1, 20X0 (the grant date), $30 million of sales wereprobable for year 5. During years 1, 2, and 3, $30 million of sales for year 5 remainedprobable. At the beginning of year 4, management determines that it is probable that only$22 million of sales will occur for year 5. What are the proper accounting treatment andjournal entries for each year? 3. At the end of year 5, Fashion's share price remained at $15 and therefore the marketcondition was not met, and the options are out of the money. What is the accounting impact of the market condition not having beenmet