On October 1, 2018, Iona Barr 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 Barr's stock price increases by 6% in three years. Barr initially estimates that it is not probable the goal will be achieved. How much compensation will be recorded in each of the next three years?
A) 100,000
B) 300,000
C) 0
D) 900,000

Question

Quizplus · Accepted Answer

If an award contains a market condition such as the stock price reaching a specified level, then no special accounting is required. The fair value estimate of the share option ($3) already implicitly reflects market conditions due to the nature of share option pricing models. So, Barr recognizes compensation expense regardless of when, if ever, the market condition is met. The estimate of the total compensation would be: 11ea937b_35a1_d511_a419_d95d82d2959a_TB2599_00 One-third of that amount, or $300,000, will be recorded in each of the three years.

On October 1, 2018, Iona Barr Issued Stock Options for 300,000