Check my work On October 1, 2018, Farmer Fabrication issued stock options for 42
ID: 2515839 • Letter: C
Question
Check my work On October 1, 2018, Farmer Fabrication issued stock options for 420.000 shares to a division manager. The options have an fair value of $9 each. To provide additional incentive for managerial achievement, the options are not exercisable estimated unless divisional revenue increases by 5% in five 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 wil increase by 5% by the end of 2020. Required: 1. What is the revised estimate of the total compensation? 2. What action will be taken to account for the options in 2019? 3. Prepare the journal entries to record compensation expense in 2019 and 2020 ook rint Complete this question by entering your answers in the tabs below. rences Req 1 and 2 Req 3 What is the revised estimate of the total compensation and what action will be taken to account for the options in 20197 1. Estimate total compensation 2. What action will be taken to account for the options in 2019? Req 1 and 2 Req3 >Explanation / Answer
1. Estimated compensation = 420,000 x $9 = $$3,680,000
2. As it is estimated in 2019 that the 5% target will be achieved by the end of 2020 the company shall record the compensation expense from the stock option by spreading the amount over the two years 2019 and 2020.
Each year the compensaion will be booked at $1,840,000.
1. Entry to record compensation expense in 2019 Date Account Title Debit credit Dec.31,2019 Compensation Expense 1840000 Paid in capital from stock options 1840000 2. Entry to record compensation expense in 2020 Date Account Title Debit credit Dec.31,2020 Compensation Expense 1840000 Paid in capital from stock options 1840000