Question
Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2021, the company issued
Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2021, the company issued 440,000 executive stock options permitting executives to buy 440,000 shares of Pastner stock for $32 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2021 (graded vesting). Pastner elects to separate the total award into four groups (or tranches) according to the year in which they vest and measures the compensation cost for each vesting date as a separate award. The fair value of each tranche is estimated at January 1, 2021, as follows:
Vesting Date | Amount Vesting | Fair Value per Option | ||||
Dec. 31, 2021 | 25 | % | $ | 5.40 | ||
Dec. 31, 2022 | 25 | % | $ | 6.00 | ||
Dec. 31, 2023 | 25 | % | $ | 6.60 | ||
Dec. 31, 2024 | 25 | % | $ | 7.20 | ||
Required: 1. Determine the compensation expense related to the options to be recorded each year 20212024, 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 20212024, assuming Pastner uses the straight-line method to allocate the total compensation cost.
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