Answered step by step
Verified Expert Solution
Question
1 Approved Answer
On January 1, 2021, Farmer Fabrication issued stock options for 150,000 shares to a division manager. The options have an estimated fair value of $5
On January 1, 2021, Farmer Fabrication issued stock options for 150,000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 3% in three years. Suppose that Farmer initially estimates that it is not probable the goal will be achieved, but then after one year, Farmer estimates that it is probable that divisional revenue will increase by 3% by the end of 2023. Required: 1. What is the revised estimate of the total compensation? 2. What action will be taken to account for the options in 2022? 3. Prepare the journal entries to record compensation expense in 2022 and 2023. Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 Prepare the journal entries to record compensation expense in 2022 and 2023. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.) No Date General Journal Debit Credit 1 2022 300,000 X Compensation expense Paid-in capital - stock options 300,000 X 2 2023 120,000 X Compensation expense Paid-in capital - stock options 120,000 X On January 1, 2021, Farmer Fabrication issued stock options for 150,000 shares to a division manager. The options have an estimated fair value of $5 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 3% in three years. Suppose that Farmer initially estimates that it is not probable the goal will be achieved, but then after one year, Farmer estimates that it is probable that divisional revenue will increase by 3% by the end of 2023. Required: 1. What is the revised estimate of the total compensation? 2. What action will be taken to account for the options in 2022? 3. Prepare the journal entries to record compensation expense in 2022 and 2023. Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 Prepare the journal entries to record compensation expense in 2022 and 2023. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Round your final answers to the nearest whole dollar.) No Date General Journal Debit Credit 1 2022 300,000 X Compensation expense Paid-in capital - stock options 300,000 X 2 2023 120,000 X Compensation expense Paid-in capital - stock options 120,000 X
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started