On October 1, 2018, Iona Bell Co. issued stock options for 300,000 shares to a division manager. The options have an estimated fair value of $3 each. To provide additional incentive for managerial achievement, the options are not exercisable unless divisional revenue increases by 6% in three years. Bell initially estimates that it is not probable the goal will be achieved, but then after one year, Bell estimates that it is probable that divisional revenue will increase by 6% by the end of 2020. Bell will:
A) record compensation expense of $600,000 in 2019 and $300,000 in 2020.
B) record compensation expense of $300,000 in 2019 and $300,000 in 2020.
C) record compensation expense of $450,000 in 2019 and $450,000 in 2020.
D) record compensation expense of zero in 2019 and in 2020.

Question

Quizplus · Accepted Answer

In that case, in 2019, the revised estimate of the total compensation would change to $900,000: 11ea937b_35a1_adfe_a419_a3c35dc53916_TB2599_00 Bell would reflect the cumulative effect on compensation in 2019 earnings and record compensation thereafter:
2019 11ea937b_35a1_adff_a419_e3ee944688e2_TB2599_00 2020 11ea937b_35a1_ae00_a419_81656166c46a_TB2599_00