Question

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 $40 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 Date	Amount Vesting			Fair Value per Option
Dec. 31, 2018		25	%	$	4.10
Dec. 31, 2019		25	%	$	4.60
Dec. 31, 2020		25	%	$	5.40
Dec. 31, 2021		25	%	$	5.60

Required:
1. Determine the compensation expense related to the options to be recorded each year 2018–2021, 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 2018–2021, assuming Pastner uses the straight-line method to allocate the total compensation cost.

• Required 2

Determine the compensation expense related to the options to be recorded each year 2018–2021, 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 $0

  

Answer 1

Anseoes sparate dede as a Q We treat cach indiuidual auwad Vestinn Dte Number ot shares Fair Value vesting Compensation Cast Per option 31-Dec-18 ao, 0o0 49a.000.00 4.10 31-Dec-019 20,000 4.60 SS,000.0o 31- Dec-3026 20,000 648,000.00 B-Dec-aa ao,co0 S. 60 Gtd,000.00 Total L,364, o00,00 Shares vestn Cmpensakion Expenses Recoreed in Totl 9019 20a0 208/ 498,000.00 31-Dec-18 49a.000.00 31-Dec-19 2760000097ca.c SSarooo. 00 St-Dec-20 ((a000xy.) t-BecH ares 30-Dec-20 al6.00.00 aUG, COo.0oa16,c0o.co 2o,coxs G8r000.00 3YYS (68,000.00 168/00o.00 68,000.00 68,0o.00 672,0r. 00 (120,000XS. 69) 31-Oec-a Cy1s Total a136,000.00 do18 2019 Tatal 202|| CompensationS91,000.00 A1,000.00 S91,000.00 591,000, ao2,364,000, 0 Expense Gne methadlthe total erpense alculate d in stroght Patl In is diuided gually among all the Paus years 000/e yis Q1 364 Scanned with CamScanner