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. At the end of 2018, only 30,000 options vest as only 30 of the 40 executives actually remain. The compensation expense for 2018 will be Round off turnover calculations to three decimal places and answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The compensation expense for 2018 is calculated based on the revised estimate of 30,000 options vesting. The total compensation cost is 30,000 options * $7 = $210,000. This cost is recognized over the 3-year service period. By the end of 2018, 2/3 of the service period has passed, so the cumulative expense is $140,000. The expense recognized in 2017 was $90,043, so the 2018 expense is $140,000 - $90,043 = $49,957.

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