Exhibit 15-5
On January 1, 2016, Roberts Company adopts a compensatory share option plan and grants 40 executives 1,000 shares each at $30 a share. The fair value per option is $7 on the grant date. The company estimates that its annual employee turnover rate during the service period of three years will be 4%.
-Refer to Exhibit 15-5. At the end of 2017, the company estimates that the employee turnover will be 5% a year for the entire service period. The compensation expense for 2017 will be Round your answer to the nearest whole dollar.)

Question

Quizplus · Accepted Answer

The compensation expense is calculated based on the fair value of the options, adjusted for expected forfeitures due to turnover. Initially, the expected forfeiture rate was 4%, but it was revised to 5%. The calculation for 2017 would be: 40 executives * 1,000 shares * $7 fair value * (1 - 0.05)^3 * 1/3 (for the second year of the service period). This results in approximately $77,468.

Exhibit 15-5 On January 1, 2016, Roberts Company Adopts a Compensatory Share