Pastner Brands is a calendar-year firm with operations in several countries. As part of its executive compensation plan, at January 1, 2018, the company issued 480,000 executive stock options permitting executives to buy 480,000 shares of Pastner stock for $33 per share. One-fourth of the options vest in each of the next four years beginning at December 31, 2018 (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, 2018, as follows:

Vesting

Amount

Fair Value

Date

Vesting

per Option

Dec. 31, 2018

25%

$5.50

Dec. 31, 2019

25%

$6

Dec. 31, 2020

25%

$6.60

Dec. 31, 2021

25%

$7

Required:

1. Determine the compensation expense related to the options to be recorded each year 20182021, 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 20182021, assuming Pastner uses the straight-line method to allocate the total compensation cost.

Determine the compensation expense related to the options to be recorded each year 20182021, assuming Pastner allocates the compensation cost for each of the four groups (tranches) separately. (Enter your answers in thousands.)

Shares

Compensation Expense in:

Vesting at:

2018

2019

2020

2021

Total

Dec. 31, 2018

Dec. 31, 2019

Dec. 31, 2020

Dec. 31, 2021

Total

2. Determine the compensation expense related to the options to be recorded each year 20182021, assuming Pastner uses the straight-line method to allocate the total compensation cost. (Enter your answers in whole dollars.)

2018

2017

2020

2021

total

Compensation Expense