Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Dryft Inc. went public in 2005 and experienced a continued increase in stock prices through 2007. With the sustained growth of the business and rising

Dryft Inc. went public in 2005 and experienced a continued increase in stock prices through 2007. With the sustained growth of the business and rising stock price, Dryft developed a practice of granting annual stock option awards to its executives at the beginning of each year.

On January 1, 2008, Dryft granted 1,000 employee share options that vest after a four-year service period, with an exercise price of $30 per share. Using the Black-Scholes pricing model, it was determined that the grant-date-fair-value-based measure of each option was $15. On the grant date, Dryfts stock was trading at $30 per share.

On January 1, 2010, Dryft decided to change the terms of the incentives for the third and fourth years of service of the 2008 annual grant by modifying the exercise price to $20 per share. Using the Black-Scholes pricing model, management determined that the fair-value-based measure of the awards as of January 1, 2010 was $9 before the terms of the award were modified and $12 immediately after modification. The modification did not affect any of the other terms or conditions of the awards. (No forfeitures are assumed.)

(1) How much compensation cost should Dryft recognize in each year of the awards service period?

(2) How would the accounting for the awards change if the modification to the terms of the award was made on January 1, 2014, after the awards have become fully vested?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_step_2

Step: 3

blur-text-image_step3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions