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FACTS: On January 1, 2015, Western Wear, Inc. granted 100,000 stock options to its employees. 30%...

FACTS: On January 1, 2015, Western Wear, Inc. granted 100,000 stock options to its employees. 30% of these options will vest on December 31, 2015, 30% will vest on December 31, 2016, and the remaining 40% will vest on December 31, 2017. The fair value of the options was $15.34 per share using a weighted-average expected life. The fair value of the 30,000 shares that vest in 2015 is $14.67 per share. The fair value of the 30,000 shares that vest in 2016 is $15.38 per share and the fair value of the remaining options is $16.30 per share. Western does not expect any forfeitures.

Prepare a memo to the file addressing Western Wear's compensation expense for 2015 through 2017. Use the Codification for support.

ISSUE: ?

ANALYSIS: ?

CONCLUSIONS:

Western Wear can choose among the three available options.

1) [Hint] Treated as three separate awards: Year Number of Options Vesting Fair Value Total Compensation Expense Compensation Expense 2015 Compensation Expense 2016 Compensation Expense 2017 2015 30,000 $14.67 440,100 440,100 2016 30,000 $15.38 461,400 230,700 230,700 2017 40,000 $16.30 652,000 217,333 217,333 217,333 Total Compensation Expense 888,133 448,033 217,333

2) ?

3) ?

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Answer #1

Fair value of shares (30000*14.67)+(30000*15.38)+(40000*16.30) -$1,553,500 SO the compensation amount will be 1553500 that should be vested in different years based on vesting period 30000 option will vest in 1st yer, so it should be amortized in this year only Particulars Total compensation expense at fair value$ Percentage of option expected to vest Expected compensation expense Cumulative rate of amortiztion Cumulative compensation expense Less- Expense recognized in prior years Compensation expense (income) Amount 4,40,100.0030000*14.67 4,40,100.00 4,40,100.00 4,40,100.00 100% 30000 option will vest in 2nd year, so it should be amortized in two year equall Particulars Amount December 31, 2015 December 31, 2015 Total compensation expense at fair value$ Percentage of option expected to vest Expected compensation expense Cumulative rate of amortiztion Cumulative compensation expense Less- Expense recognized in prior years Compensation expense (income) 4,61,400.0o $ 4,61,400.0o $ 2,30,700.00 $ 2,30,700.00 $ 4,61,400.00 30000 15.38 100% 100% 4,61,400.00 2,30,700.00 2,30,700.00 30000 option will vest in 3rd year, so it should be amortized in three year equall Amount Particulars Total compensation expense at fair value$ Percentage of option expected to vest Expected compensation expense Cumulative rate of amortiztion Cumulative compensation expense Less- Expense recognized in prior years Compensation expense (income) December 31, 2015 December 31, 2015 December 31, 2015 6,52,000.00 $ 6,52,000.00 $ 2,17,333.00 $ 2,17,333.00$ 6,52,000.00 6,52,000.00 6,52,000.00 6,52,000.00 2,17,333.00 2,17,333 2,17,333.00 2,17,333.00 100% 100% 100% Now 1st, 2nd, 3rd plan should be merge for recognition of compensation expenses Particulars Compensation recognition on 31 december, 2015 Compensation recognition on 31 december, 2016 Compensation recognition on 31 december, 2017 Amount 888133 440100+230700+217333 448033 230700+217333 217333

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