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Homework Answers
Answer-1- Revised estimate of total compensation expenses for 2018:-
Revised estimate of total compensation= (Number of stock option issued*Estimated fair value of each option)
=380,000*$9
=$3,420,000
One-fifth of that amount, or $684000, will be recorded in each of the five years.
Since the farmer estimates that it is not probable that divisional revenue will increase by 3% in three years, the Estimated Total Compensation would be $0.
This is because the options are not exercisable unless divisional revenue increases by 3% in three years.
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Return to question Brief Exercise 19-9 Performance-based options (LO19-2] 1.9 points On January 1, 2018, Farmer Fabrication issued stock options for 380,000 shares to a division manager. The options have an estimated fair value of $9 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 3% in five years. Suppose that after one year, Farmer estimates that it is not probable that divisional revenue will increase by 3% in five...
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