"Now what do people do?" complained campus colleague Deborah. someone and Deborah are recent hires in the Accounting Division of National Paper. A top executive in the company has been given share-based incentive instruments that permit her to receive shares of National Paper equal in value to the amount the company shares rise above the shares' value two years ago when the instruments were issued to her ascompensation. The instruments vest in three years. A clause was included in the compensation agreement that would permit her to receive cash rather than shares upon exercise if sales revenue in her division were to double by that time. Because that contingency was considered unlikely, the instruments have been accounted for as equity, with the grant date fair value being expensed over the five-year vesting period.

Now, though, surging sales of her division indicate that the contingent event has become probable, and the instruments should be accounted foras a liability rather than equity. The fair value of the award was estimated at $5 million on the grant date, but now is $8 million. Deborah has asked help in deciding what to recommend to controller as the appropriate action to take at this point.

1. Obtain the relevant authoritative literature on accounting for a change in classification due to a change in probable settlement outcome by accessing the free "Basic View" of the FASB Accounting Standards Codification at the FASB website(https://asc.fasb.org/home). To help explain to Deborah the basic treatment of the situation described, determine the specific seven-digit Codification citation (XXX-XX-XX) you would rely on in applying that accounting treatment.
2. Prepare the journal entry to record the change in circumstance.