Homework Answers
1) Revised Estimate compensation expense for the year 2019 is $2,040,000 (340,000 shares*$6 per share)
2) Farmer will reflect the cumulative effect on compensation in 2019 earnings.
3) Compensation expense recognized in year 2018 = $0 (becauseit is not probable in the year 2018).
Cumulative compensation expense to be recognized upto 2019 = Estimated compensation expense*2 years/5 years
= $2,040,000*2/5 = 816,000
Compensation exp. to be recognized in 2019 = Cumulative compensation exp. upto 2019 - Recognized in 2018
= $816,000 - $0 = $816,000
Cumulative compensation exp. upto 2020 = $2,040,000*3/5 = $1,224,000
Compensation exp. to be recognized in 2020 = Cumulative compensation exp. upto 2020 - Recognized upto 2019
= $1,224,000 - $816,000 = $408,000
Journal Entries (Amount in $)
| No | Date | General Journal | Debit | Credit |
| 1 | 2019 | Compensation expense | 816,000 | |
| Paid-in Capital-Stock options | 816,000 | |||
| 2 | 2020 | Compensation expense | 408,000 | |
| Paid-in Capital-Stock options | 408,000 |
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